Woodcrafts Enterprises Corporation Private Ltd. Vs. Sales Tax Officer and ors. - Court Judgment

P.N. Khanna, J.

1. This writ petition under articles 226 and 227 of the Constitution of India has been filed by M/s. Woodcraft Enterprises Corporation Private Limited of Kirti Nagar, New Delhi, praying for the issuance of appropriate writs or directions, inter alia, for quashing the notice dated August 5, 1965, issued by the Assistant Sales Tax Officer, respondent No. 2, under Sub-section (1) of Section 11 of the Bengal Finance (Sales Tax) Act, 1941, as extended to the Union Territory of Delhi (herein called ''the Act'), read with Rule 32 of the Rules framed under the Act (herein called 'the Rules'), and the assessment order dated May 25, 1968, passed by the Sales Tax Officer, respondent No. 1, which has since merged in the appellate order dated February 14, 1969, and the order in revision dated October 3, 1969. The Sales Tax Officer, Ward No. 23, New Delhi, is respondent No. 1, while Shri A. Kanwar, Assistant Sales Tax Officer, New Delhi, the Commissioner of Sales Tax, Delhi, Union of India, and the Delhi Administration have been made respondents Nos. 2 to 5 respectively.

2. The petitioner-company is a dealer in Delhi, registered under the Act. In the assessment year 1964-65 the petitioner filed returns of its turnover and deposited the advance tax, as required under the Act for the first and third quarters. For the second quarter, its return was not traceable in the sales tax office and was treated as not having been filed; nor was any tax deposited for the said quarter. The return for the fourth quarter was filed late and the advance tax was not paid in full On August 5, 1965, respondent No. 2 purporting to act as Assistant Sales Tax Officer, the appropriate assessing authority under Sub-section (1) of Section 11 of the Act read with Rule 32 of the Rules, issued a notice in form ST XIV to the petitioner for the purpose of making an assessment under the Act, for the year 1964-65. In response thereto, the petitioner put in appearance before the Sales Tax Officer. Ultimately, on May 25, 1968, respondent No. 1, in exercise of the powers under Sub-section (1) of Section 11 of the Act, completed the assessment for the said year 1964-65. He found the petitioner's account books in order, but the figures in the returns did not tally with the figures in the books. A revised statement of sales was prepared in accordance with the books and an order of assessment was passed in accordance therewith. An additional demand was created for a sum of Rs. 9,881.02 as the balance tax due ; while a penalty of Rs. 4,000 was imposed 'keeping in view the amount of tax withheld and the period for which it was not paid'. The petitioner filed an appeal against the said assessment, which was dismissed by the Assistant Commissioner, Sales Tax, Delhi. A revision to the Deputy Commissioner, Sales Tax, met with the same fate.

3. The said notice in form ST XIV dated August 5, 1965, to the petitioner has been challenged on the ground that on that date, respondent No. 2, who issued the said notice was not authorised to act as an Assistant Sales Tax Officer, as till that time he had not been appointed as such. The powers conferred on him by the Commissioner of Sales Tax were of no avail because of the lack of initial appointment by the Chief Commissioner as required by Section 3 of the Act. Respondent No. 2 in issuing the impugned notice was, thereforee, acting without jurisdiction. The assessment order and the subsequent orders in appeal and revision, according to the petitioner, are, thereforee, ultra vires, illegal and void as they are based on the proceedings initiated by respondent No. 2, who was not competent to do so under the law.

4. It has been further stated in the petition that Sub-section (1) of Section 11 of the Act is ultra virus Article 14 of the Constitution of India as it empowers the assessing authority to impose penalty for the violation of Section 10(3) and provides a summary procedure for the purpose, while Section 22(1)(b) of the Act requires a regular trial for a similar default by a Magistrate in accordance with the procedure prescribed in the Criminal Procedure Code and in accordance with the rules of evidence laid in the Evidence Act. There is no criteria in the Act or in its preamble or in the rules to indicate when action is to be taken under Section 11(1) and when under Section 22(1 )(b) of the Act in the case of said default. The matter is left entirely to the absolute and unguided discretion of the Sales Tax Officer. There is no reasonable basis for differentiating between persons similarly situated in the matter of application of these parallel provisions which aim at the same objective in clear violation of Article 14 of the Constitution of India. The petitioner has accordingly filed this petition praying for the reliefs stated above.

5. The contentions of Shri Saharya, the learned counsel for the petitioner, thus, are twofold : (a) that the assessment order dated May 25, 1968, which has since merged in the orders in appeal and revision respectively, is bad and ineffective, as the required notice under Sub-section (1) of Section 11 of the Act was not issued. The notice dated August 5, 1965, issued by respondent No. 2 is no notice in the eyes of law as respondent No. 2 was not competent to issue the same; and (b) that the assessment made under Section 11 is bad as article' 14 of the Constitution of India is violated inasmuch as Section 11(1) of the Act gives arbitrary, uncanalised and unguided discretion to the assessing authority to proceed in a summary manner against the dealer under the said section rather than under a similar provision contained in Section 22 of the Act, which envisages a judicial prosecution in respect of the same facts which constitute a default under Section 10(3).

6. Dealing with the first contention of Shri Saharya it is observed from a copy of the order dated March 30, 1966, of the Chief Commissioner that he appointed respondent No. 2 as an Assistant Sales Tax Officer with effect from March 24, 1952. The question, thereforee, arises whether by making the appointment on March 30, 1966, the Chief Commissioner could give retrospective effect, to it from March 24, 1952. The power of appointment under Section 3 of the Act does not give the power to validate the proceedings taken by an appointee before the date of his appointment when he had no jurisdiction at all in the matter. The Chief Commissioner, Delhi, thereforee, could not validate the action of respondent No. 2, taken before the date of his appointment by making the appointment retrospectively. The Supreme Court has expressed this view in Income-tax Officer, Alleppey v. M.C. Ponnoose : [1970]75ITR174(SC) , and Dayal Bagh Co-operative House Building Society v. Sultan Singh, C A. No. 654 of 1965, decided on January 6, 1966, that such an appointment cannot be given retrospective effect. In the former case, Income-tax Officer, Alleppey v. M. C. Ponnoose1, Grover, J., speaking for the court observed :

Where any rule or regulation is made by any person or authority to whom such powers have been delegated by the Legislature it may or may not be possible to make the same so as to give retrospective operation. It will depend on the language employed in the statutory provision which may in express terms or by necessary implication empower the authority concerned to make a rule or regulation with retrospective effect. But where no such language is to be found it has been held by the courts that the person or authority exercising subordinate legislative functions cannot make a rule, regulation or bye-law which can operate with retrospective effect.

7. The Taluka Tahsildar in that case before the Supreme Court, who had been empowered by a notification to exercise the powers of a Tax Recovery Officer, under that Act, with retrospective effect, could not, it was held, be so authorised retrospectively.

8. The power to give retrospective validity to the appointment or to the actions taken as a result of such appointment not having been conferred on the Chief Commissioner by the Act, he could not make the appointment retrospectively. Such being the case, respondent No. 2 clearly had no competence to issue notice in form ST XIV dated August 5, 1965, as the assessing authority. The said notice, thereforee, is invalid and non-existent in the eyes of law.

9. The question then arises whether the subsequent assessment initiated by the said notice is bad. According to Shri Saharya, in the absence of such notice, subsequent proceedings would be of no avail and futile. The liability of the dealer to 'be assessed commences, according to him, only when a notice in form ST XIV is issued by the assessing authority, such notice being a condition precedent to the validity of the assessment.

10. In order to decide whether such notice is a condition precedent, the language used in the provisions of the Act has to be examined. The relevant provisions are contained in Sections 10 and 11(1) of the Act, which are in the following terms:

10. Payment of tax and, returns.-(1) Tax payable under this Act shall be paid in the manner hereinafter provided at such intervals as may be prescribed.

(2) Such dealers as may be required so to do by the Commissioner by notice served in the prescribed manner and every registered dealer shall furnish such returns by such dates and to such authority as may be prescribed.

(3) Before any registered dealer furnishes the returns required by Sub-section (2), he shall pay into a Government treasury or the Reserve Bank of India or in such other manner as may be prescribed the full amount of tax due from him under this Act according to such returns, and shall furnish along with the returns a receipt from such treasury or bank showing the payment of such amount.

(4) If any dealer discovers any omission or other error in any return furnished by him, he may at any time before the date prescribed for the furnishing of the next return by him, furnish a revised return ; and if the revised return shows a greater amount of tax to be due than was shown in the original return, it shall be accompanied by a receipt showing payment in the manner provided in Sub-section (3) of the extra amount.'

11. Assessment of tax.-(1) If no returns are furnished by a registered dealer in respect of any period by the prescribed date, or if the Commissioner is not satisfied that the returns furnished are correct and complete, the Commissioner shall, within eighteen months after the expiry of such period, proceed in such manner as may be prescribed, to assess to the best of his judgment the amount of the tax due from the dealer and in making such assessment shall give the dealer a reasonable opportunity of being heard ; and in the case of failure by a registered dealer to submit in respect of any period, a return accompanied by receipt from a Government treasury or the Reserve Bank of India as required under Sub-section (3) of Section 10, by the prescribed date, the Commissioner may, if he is satisfied that the default was made without reasonable cause, direct that the dealer shall pay by way of penalty in addition to the amount of the tax so assessed, a sum not exceeding one and a half times that amount.

11. It will be observed that Section 11(1), which is the only provision in the Act for making a best judgment assessment, in a case where no return has been filed or where the Commissioner is not satisfied that the return filed is correct and complete, does not speak of a notice. The only requirement under Section 11(1) is that the dealer must be given a reasonable opportunity of being heard. The Commissioner is then enabled to proceed to make the assessment in such mariner as may be prescribed. Now the manner in which the Commissioner is required to proceed for the purpose of making the assessment has been prescribed in rules 32 to 38, the relevant rules being rules 32 and 36. It is under Rule 32 that the notice in form ST XIV calling upon the dealer, inter alia, to produce the books and other documents together with any objections which the dealer may wish to prefer, is required to be served by the appropriate authority on the dealer. The assessing authority, under Rule 36, after considering the objections of the dealer and evidence produced by him and after giving him an opportunity of being heard, assess the amount of tax, if any. The service of the notice is, thus, a part of the manner or the procedure, which is required to be followed by the assessing authority for the assessment of the tax due from the dealer. The Act, thus, does not make the service of a notice a condition precedent for the assessment of tax as was contended by Shri Saharya. The case of B. C. Samathanmath v. Commercial Tax Officer, I Circle, Hubli [1969] 24 S.T.C. 252, on which reliance was placed by Shri Saharya, and where it was held that no best judgment assessment is possible until it is preceded by a notice properly issued under Section 14(3)(a) of the Bombay Sales Tax Act, is of no avail in the present case as the language of Section 14(3)(a) of the Bombay Sales Tax Act, which was being considered in that judgment, makes the service of a notice, a condition precedent for making the assessment under Section 14(4). The best judgment assessment under that Act can only be made if the dealer fails to comply with the terms of the notice issued under Section 14(3)(a). It was in that state of the law that it was held that no best judgment assessment under Sub-section (4) of Section 14 was possible until the assessment was preceded by the notice properly issued under Clause (a) of Sub-section (3) of Section 14. The decision of the Supreme Court in Y. Narayana Chetty v. Income-tax Officer, Nellore [1959J 35 I.T.R. 388 , cited by Shri Saharya, also is of no help as that was a case under Section 34 of the Indian Income-tax Act, 1922, for initiating proceedings in cases of escaped or under-assessment. In the said Section 34, the language used is different from the language of Section 11 (1) of the Act. Under Section 34 the Income-tax Officer on finding that the chargeable income, profits or gains have escaped assessment or have been under-assessed or assessed at too low a rate may 'serve on the assessed...a notice containing all or any of the requirements, which may be included in a notice under Sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits....' Service of the notice has been treated in Section 34 separately from and as a condition precedent to 'proceed to assess or reassess'. It was under those circumstances that the Supreme Court held that the service of notice was not a mere procedural requirement under Section 34 but was a condition precedent to the validity of any assessment or reassessment under that section. It will be significant to note that such a language under which the service of notice is made a condition precedent was not absent from the mind of the Legislature, in the present case, as is apparent from the language used in Section 11-A of the Act, which deals with assessment or reassessment of escaped or under assessed turnover. The language in that section is in pan materia with the language of Section 34 of the Indian Income-tax Act and the sending of 1 he notice has been made there a condition precedent. But an entirely different language has been used in Section 11(1), where notice has not been mentioned at all. The sending of the notice, thereforee, is not a condition precedent to the making of a best judgment assessment under the said section. It has not been lifted out of the realm of procedure ; on the other hand, it has been left to form a part of the procedure or the manner which has been prescribed by the rules as required under Section 11(1). The disregard of this procedure may amount to an irregularity. It cannot be regarded as a case of lack of jurisdiction. The only requirement is that the dealer concerned has to be given a reasonable opportunity of being heard. Although the notice dated August 5, 1965, issued by respondent No. 2 in this case has to be disregarded, the petitioner did put in appearance before respondent No, 1, and had the assessment made only after it had full opportunity of being heard and of placing its account books and objections before the authority concerned. The requirements of Section 11(1) was, thereforee, satisfied. The want of notice may be an irregularity in the assumption of jurisdiction, but the assessment order itself passed by respondent No. 1, who had full authority to do so, cannot be held to be without jurisdiction or otherwise bad. In Central Potteries Ltd. v. State of Maharashtra[1962] 13 S.T.C. 472, it was observed by Venkatarama Aiyar, J., for the Supreme Court:

There is a fundamental distinction between want of jurisdiction and irregular assumption of jurisdiction. Whereas an order passed by an authority with respect to a matter over which it has no jurisdiction is a nullity and is open to collateral attack, an order passed by an authority which has jurisdiction over the matter, but has assumed it otherwise than in the mode prescribed by law, is not a nullity.

12. The assessment made by respondent No. 1, thereforee, after hearing the petitioner, who had taken the opportunity to place its case before him, was perfectly valid and in order. It may also be observed that the liability of the petitioner to pay tax on its sales arose under Section 4 of the Act, which is the charging section. The petitioner, when assessed to tax by respondent No. 1 and asked to pay the balance tax due, was being called upon to discharge its liability which had already arisen under Section 4 of the Act. Having appeared before respondent No. 1, the petitioner can be treated to have voluntarily appeared before the competent assessing authority whose authority is not challenged, and after explaining its objections and after being heard, it got its turnover assessed in respect of which the liability for payment of tax had already been incurred. The said assessment thereforee cannot be challenged merely because the notice in form ST XIV was not served. In Harmukh Rai, Jairam Das v. State [1952] 3 S.T.C. 153, it was held that the Sales Tax Officer had jurisdiction to make the assessment notwithstanding the fact that no notice under Section 13(1 )(a) of the Bihar Sales Tax Act, 1947, had been issued. In Gollapudi Pullayya Co. v. State of Andhra (now Andhra Pradesh) [1958] 9 S.T.C. 24, it was held that when a notice is issued by a person not authorised to issue it, the person who received it may ignore it without risk. But, if he complies with its terms and has had an opportunity of making the Explanationns to the proper officer, which the notice had directed him to offer, then the resulting order passed after hearing him cannot be challenged. The assessed cannot complain of want of notice in regard to a matter which he did not dispute. The petitioner in the present case was duty bound under Section 10(3) of the Act to pay the amount of tax on his turnover. If, thereforee, as a result of the assessment, he has been asked to pay the said amount, no illegality can be said to have been committed.

13. While making the assessment, the assessing authority was satisfied that the default, in furnishing the return and in paying the full amount of the tax due, was made without any reasonable cause. He had, thereforee, the power under Section 11(1) to direct that the dealer should pay by way of penalty in addition to the amount of the tax a sum not exceeding one and a half times that amount. The absence of the notice did not result in the violation of the principles of natural justice, inasmuch as the petitioner in this case had the opportunity of being heard and making its objections, even to the levy of penalty. This is clear from the assessment order itself, where it is mentioned that 'the dealer explained that it was due to shortage of finance as the payments were held up, that the amount was not deposited in full.' The assessing authority, however, did not find the Explanationn satisfactory. He, thereforee, levied the penalty keeping in view the amount of the tax and the period for which it was withheld. There was, thereforee, nothing wrong in the action taken by respondent No. 1 under Section 11(1). The first contention of Shri Saharya under the circumstances is without any substance.

14. To substantiate his second contention, Shri Saharya referred to Section 11(1) and Section 22(1 )(b) of the Act. In the case of failure by a registered dealer to submit in respect of any period a return accompanied by a receipt of payment of tax as required under Sub-section (3) of Section 10 by the prescribed date, the assessing authority can direct under Section 11(1), if satisfied that the default was made without reasonable cause, that the dealer shall pay a penalty. % the case of a dealer who 'fails without sufficient cause to submit any return as required by Sub-section (2) of Section 10 or submits a false return', the dealer is liable to prosecution under Section 22(1 )(b) and to punishment as provided in that section. Under the proviso to Sub-section (1) of Section 22, the prosecution for the offence cannot be instituted in respect of the same facts in respect of which penalty has been imposed under Section 11. The contention of Shri Saharya is that the two sections provide two alternative procedures one under Section 11(1) being more prejudicial than the other under Section 22. The dealer is subjected to the whims of the assessing authority, who may deprive him of the judicial prosecution by levying penalty under Section 11(1). The discrimination, thereforee, results, according to the learned counsel, as the assessed is left at the mercy of the authority to exercise a more prejudicial procedure against some and not against others. By, thus, leaving it to the unguided discretion of the assessing authority, to select one or the other procedure and pick and choose some of the assesseds for the infliction of more drastic procedure under Section 11(1), that section results in discrimination. The same is, thereforee, vocative of Article 14 of the Constitution of India and is, thereforee, void, urged the counsel. He relied, in support of his contentions, on Northern India Caterers Pvt. Ltd. v. State of Punjab : [1967]3SCR399 , where Section 5 of the Punjab Public Premises and Land (Eviction and Rent Recovery) Act, conferring an additional remedy over and above the ordinary remedy by way of a suit, was considered and it was held that by providing two alternative remedies to the Government and leaving it to the unguided discretion of the Collector to resort to one or the other and to pick and choose some of those in occupation of the public properties and premises for the application of the more drastic procedure under Section 5, that, section has lent itself open to charge of discrimination and as being vocative of Article 14. Section 5 under these circumstances was declared to be void. But, the present case is entirely different. The impugned provisions of the Act, as discussed hereinafter, are intended to serve an entirely different purpose. The learned counsel also cited Grand Cinema, Mansa v. Entertainment Tax Officer, Bhatinda , where the court examined Section 14 of the Punjab Entertainments Duty Act. The offences and penalties in Section 14-A are the same as in Section 15(1) with only one difference that a prescribed authority imposes the penalty under Section 14-A while a trial before a Magistrate is held under Section 15. For the same offence, there are two different modes of trial, without any criteria being laid in the Act or the Rules as to which cases are intended to be covered by Section 15(2) and which under Section 14-A. Section 14-A was declared to be ultra virus Article 14 of the Constitution under the circumstances. The nature and scope of the provisions in the present case, as will be presently discussed, were not under consideration in the said case.

15. The contentions of the learned counsel, when examined, in view of the circumstances of this case, are found to be without merit. The true scope of the prosecution provisions contained in Section 22(1) and of the penalty provisions in Section 11(1) requires to be fully appreciated. The prosecution provision is harsher in its consequences as it may result in imprisonment by way of punishment and may thus deprive the assessed of his personal liberty. Attempt has, thereforee, been made to devise some restriction against its free use. Section 22(2) requires that the previous sanction of the Commissioner should be obtained for, launching a prosecution. Although the Commissioner under Section 15 can delegate any of his powers under the Act to any person appointed under Section 3 to assist him, he cannot, it may be noted, delegate to any one, his power of granting previous sanction under Section 22(2). Further, no prosecution can take place if a penalty has already been imposed under Section 11(1). These provisions serve the purpose of imposing fetters around the provisions for the institution of prosecutions, which are, thus, hedged in by sufficient safeguards and there could, thereforee, be no violation of the guarantee under Article 14 of the Constitution. Shri B.N. Kirpal, the learned counsel for the respondent drew our attention to the judgment of the Supreme Court in T. S. Baliah v. T. S. Rangachari, Income-tax Officer, Madras : [1969]72ITR787(SC) , where, dealing with somewhat similar provisions in the Indian Income-tax Act, 1922, it was observed :

The offence provided for in Section 52 of the 1922 Act is an offence specially constituted and the prosecution for that offence requires the sanction of the Inspecting Assistant Commissioner. No prosecution also can take place if penalty has been imposed under Section 28 of the 1922 Act. The institution of a complaint under Section 52 of the 1922 Act is, thereforee, circumscribed by sufficient safeguards and we do not consider that there is any violation of the guarantee under Article 14 of the Constitution.

16. This true character of the penalty provisions in Section 11(1) which are thus designed to provide safeguards against an otherwise inelastic provision for launching a criminal prosecution cannot be lost sight of.

17. The two provisions, one for imposing a, penalty and the other for launching a prosecution, in substance are not alternate to each other; but are separate and independent. Section 11(1) deals with the case of the registered dealer, while Section 22(1 )(b) deals with dealers in general, both registered as well as unregistered. Section 11(1) is designed to tackle cases where the emphasis is more on the non-payment of tax by a registered dealer under Section 10(3), while Section 22(1 )(b) is designed to tackle cases of non-submission of returns only as required by Section 10(2). The learned counsel contends that the default under Section 10(2) is included in the default under Section 10(3) referred to in Section 1.1(1) as the return, if not accompanied by a receipt as required by Sub-section (3) of Section 10 may be no return in the eyes of law. There may be some overlapping in Sub-section (2) and Sub-section (3) of Section 10 of the Act. But, it is not necessary to go into this controversy as the overlapping, if any, has been corrected by the proviso to Section 22(1), which comes into play, and forbids the institution of the prosecution, if penalty has been imposed in respect of the same facts.

18. The objects of the provisions contained in Section 11(1) and in Section 22( 1) are entirely different. The prosecution under Section 22 is intended to vindicate public justice and to punish the offender for deliberate infraction of law, while the penalty provision in Section 11(1) is intended for the purpose of rendering the evasion unprofitable and for securing to the State compensation or damages caused by the attempted evasion. As was held by a Bench of the Madras High Court in Sivagaminatha Moopanar & Sons v. Income-tax Officer, II Circle, Madurai : [1955]28ITR601(Mad) , who were considering the prosecution provisions and the penalty provisions in the Indian Income-tax Act, 1922, 'the two remedies or proceedings could have been taken at the same time, and it is the case, for instance, directed to secure very different objects, Sections 51 and 52 for vindicating public justice and for the punishment of the offender for deliberate infraction of law and Section 28 for the purpose of rendering evasion unprofitable and of securing to the State compensation or damages caused by the attempted evasion.' It was held in that case that Section 28(4) of the Indian Income-tax Act, 1922, under which no prosecution for an offence could be instituted in respect of the same facts on which penalty had been imposed, only made provisions for a statutory concession to the assessed in the overlapping cases, and did not attract the vice of unequal protection of laws. To the same effect is a judgment of a Bench of the Andhra Pradesh High Court in Maddula Appa Rao v. Income-tax Officer, Eluru : [1959]36ITR140(AP) .

19. These provisions have to be viewed, thereforee, in their true light. And seen thus, it will be clear that the violation of Article 14 of the Constitution complained of, does not in fact exist. The second contention of the learned counsel, thereforee, cannot be accepted.

20. In the result, the writ petition is dismissed, but in the circumstances of the case, there will be no order as to costs.