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CASE NO.: Appeal (civil)  2643-2644 of 2000

PETITIONER: Sree Balaji Rice Mill, Bellary

RESPONDENT: State of Karnataka

DATE OF JUDGMENT: 31/03/2005

BENCH: S.N. VARIAVA, Dr. AR. LAKSHMANAN & S.H. KAPADIA

JUDGMENT: JUDGMENT

Dr. AR.LAKSHMANAN, J.

       These appeals were filed against the order dated 15.11.1999 in  S.T.A.Nos.31 and 32 of 1996 on the file of the High Court of  Karnataka vide which, the High Court dismissed the appeal filed by  the appellant herein.          The appellant is a dealer registered under the provisions of the  Karnataka Sales Tax Act, 1957 (hereinafter referred to as ’the Act’)  engaged in the activity of hulling paddy and is also a trader in rice,  paddy husk and rice bran. The Assistant Commissioner of  Commercial Taxes, Bellary passed an order of assessment under  Section 12(3) of the Act vide order dated 12.07.1990 for the  assessment years 1987-88 and 1988-89.          The Additional Commissioner of Commercial Taxes,  Devangere Zone, Devangere issued notices dated 16.02.1994 and  21.03.1994 under Section 22A of the Act proposing to revise the  order of assessment dated 12.07.1990 passed by the Assessing  Authority on the ground that the assessment order was erroneous and  prejudicial to the interest of the Revenue. In the notices, the  Revisional Authority had made observations to the effect that the  books of accounts have not been properly maintained. In response to  the notices, the appellant filed reply on 04.04.1994 denying the  observations made by the Revisional Authority and had requested the  said Authority to drop the proceedings initiated under Section 22A of  the Act. The Revisional Authority on 08.04.1994 issued a further  notice under Section 22A(1) of the Act making the same proposal as  made in the earlier notices and further proposed to levy penalty under  Section 18A of the Act. The Revisional Authority confirmed the  proposals made in the notices issued under Section 22A of the Act  vide order dated 02.06.1994 and modified the set-off granted by the  Assessing Authority.          The appellant feeling aggrieved by the revisional orders  preferred two appeals in the High Court of Karnataka. The High  Court dismissed the appeals by its order dated 15.11.1999. The High  Court took the view that the determination of tax contemplated under  Section 12 (3) of the Act  took within its ambit the levy of penalty  under Section 18A of the Act and if the Assessing Authority while  passing such an order had not considered the levy of such penalty, the  order under Section 12(3) was amenable as such to the jurisdiction  under Section 22A of the Act.          Feeling aggrieved, the appellant filed S.L.P. (Civil) Nos.5464  and 5465 of 2000 before this Court. Leave was granted by this Court  on 10.04.2000.         We heard Mr.Dhruv Mehta, learned counsel appearing  for the  appellant and Mr.Sanjay R.Hegde, learned counsel appearing  for the  respondent-State.

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       Mr.Dhruv Mehta, learned counsel appearing for the appellant,  made the following submissions:

       (1) The proceedings for quantification of tax under Section  12(3) of the Act and the levy of penalty under Section 18A of the Act   are distinct and separate proceedings requiring separate procedures to  be followed. In support of the above proposition, he relied upon the  following judgments:

(a)     Additional C.I.T. Vs. J.K.D’Costa, 1982  (133) ITR 7 (b)CIT Vs. Nihal Chand Rekyan, 2000 (242)                ITR 45                  (2)      It was submitted that unless there is a specific and  separate order under Section 18A of the Act, no revisional order  under Section 22A can be passed on the ground of the alleged non- levy of penalty and such an order cannot direct the levy of penalty  under Section 18A of the Act. He relied on the following judgments  in support of the above proposition: (a)     Khemchand Rajkumar Vs. State of Tamil      Nadu, 1974(33)STC 78 (b)     Shetkari Sahakari Sakhar Karkhana Ltd.              Vs. State of Maharashtra, 1996(102)STC  157. (c)     Tata Exports Ltd. Vs. State of Maharashtra 1995(98) STC 314.         (3)     Learned counsel further submitted that all the above  decisions have taken the view that where the Assessing Authority has  failed to pass a statutory order in regard to penalty, the Revisional  Authority cannot itself assume the power and pass the original order.

       (4) The learned counsel relied on CIT Vs. H.H.Rajkuverva  Dowager Maharani Saheb (Karnataka), 1978 (115) ITR 301.           In the above case, there was failure to charge interest under  Section 217 of the Income Tax Act. The Commissioner of Income  Tax initiated action under Section 263 of the Income Tax Act, issuing  notices to the assessee calling upon them to show cause as to why an  order should not be made charging interest under Section 217 of the  Income Tax Act. The Karnataka High Court held that since an order  under Section 217 of the Income Tax Act does not form part of an  order of the assessment, the mere omission of the Income Tax Officer  to refer to the penal interest payable thereunder in the order of  assessment cannot lead to the inference that the Income Tax Officer  has waived the interest payable without giving any reason for doing  so. It was held that as there was in existence no such order passed by  the  Income Tax Officer which would clothe the Commissioner with  the jurisdiction to make an order under Section 263 of the Income  Tax Act, the action taken by the Commissioner was a premature one.         (5)     Learned counsel further submitted that no penalty under  Section 18A of the Act  can be levied by any person other than the  Assessing Authority and the same cannot be levied by any higher  authority like Additional Commissioner of Commercial Taxes  exercising revisional power. It was submitted that otherwise the  assessee would be deprived of the right of appeal under Section 20 of  the Act against an order passed under Section 18A of the Act.         (6)     Concluding his arguments, learned counsel appearing  for the appellant, submitted that the order dated 12.07.1990 under  Section 12(3) of the Act neither impliedly nor expressly purported to  deal with the provisions of Section 18A of the Act and in fact, he  would not have dealt it with and therefore, it was not open to the  Revisional Authority acting in exercise of power under Section 22A  of the Act to levy penalty under Section 18A of the Act.              In view of the above submissions, the learned counsel  submitted that the impugned order of the High Court is liable to be

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set aside.         Mr.Sanjay R.Hegde, learned counsel appearing for the  respondent-State submitted that the order passed by the Revisional  Authority cannot be treated as being without jurisdiction, illegal or  improper or prejudicial to the appellant herein since the appellant had  been made aware of the proposed action for levy of penalty, had been  heard in the matter and the order had been passed in accordance with  law and all these essentials of law and natural justice have been  complied with in this case and therefore, the impugned order cannot  be faulted with on any ground whatsoever.          He would further submit that the argument of the learned  counsel for the appellant that the Revising Authority is not competent  to levy penalty for the first time when no penalty has been levied by  the Assessing Authority is wholly untenable, without statutory basis  and unreasonable from any point of view. The non-levy of penalty by  the Assessing Authority is itself an illegality caused by a failure to  exercise jurisdiction and therefore, prejudicial to the interest of the  revenue. Hence, he submitted that the levy of penalty by means of an  order in revision proceedings is reasonable, just and proper and  therefore, not liable to be faulted.         The following questions of law arise for consideration by this  Court:         (a)What is the scope and effect of Section 22A of the  Karnataka Sales Tax Act, 1957?         (b)Whether a penalty order under Section 18A of the Act  forms a part of an assessment order?         (c)While purporting to revise an order under Section  12A which neither expressly nor impliedly refer to any  proceeding under Section 18A and were thus not within the  contemplation of the assessing authority while passing the  order under Section 12(3), it is open for the Commissioner,  while purporting to act under Section 22A in respect of the  order under Section 12(3) to pass an order under Section 18A  either as a part of the order under Section 22A or separately as  such under Section 18A?         (d)On the facts and in the circumstances of the  appellant’s case, whether the Revisional Authority was right in  levying penalty under Section 18A of the Act for the first time  when the language employed in Section 18A of the Act did not  confer any power on him for doing the same?         We have carefully perused the pleadings, the orders passed by  the authorities below and also of the High Court and perused the  grounds of appeal and other annexures etc.         Before proceeding further, it is beneficial to reproduce  Sections 18, 18A and 22A of the Karnataka Sales Tax Act: "Section 18: Collection of tax by dealers:         (1)(a) A person who is not a registered  dealer liable to pay tax shall not collect any  amount by way of tax or purporting to be by way  of tax under this Act; nor shall a registered dealer  collect any amount by way of tax or purporting to  be by way of tax at a rate or rates exceeding the  rate or rates at which he is liable to pay tax under  the provisions of this Act.

       (b)No person shall collect any amount by  way of tax or purporting to be by way of tax in  respect of sales of any goods (or any transaction)  on which no tax is payable by him under the  provisions of this Act.

       (2)Notwithstanding anything contained in  sub-section (1), a dealer who has been permitted to  pay any amount by way of composition under sub- section (1) or sub-section (4) or sub-section (8) of

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Section 17 or a dealer who is exempted from sales  tax by virtue of recognition granted under the  provisions of this Act, shall not collect any amount  by way of tax or purporting to be by way of tax on  the sales or purchases of goods made during the  period to which such composition or recognition  applies.

Section 18A: Penalty for collection in  contravention of Section 18:

       If any person contravenes any of the  provisions of Section 18, the assessing authority  may, after giving such person reasonable  opportunity of being heard, by order in writing,  impose upon him by way of penalty a sum (not  less than one half but not exceeding an amount  equivalent to):

       Provided further that no prosecution for an  offence under Section 29 shall be instituted in  respect of the same facts on which a penalty has  been imposed under this Section.

Section 22A: Revisional Powers of Additional  Commissioner and Commissioner:

       (1) The Additional Commissioner may on  his own motion call for and examine the record of  any proceeding under Section 20 or Section 21 of  this Act and if he considers that any order passed  therein by any Officer who is not above the rank of  a Joint Commissioner, is erroneous in so far as it is  prejudicial to the interests of the revenue, he may,  if necessary, stay the operation of such order for  such period as he deems fit and 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 orders thereon as the  circumstances of the case justify, including an  order, enhancing or modifying the assessment, or  cancelling the assessment or directing a fresh  assessment.

       (2) The Commissioner may on his own  motion call for and examine the record of any  proceeding under this Act, and if he considers that  any order passed therein by any officer subordinate  to him is erroneous in so far as it is prejudicial to  the interests of the revenue, he may, if necessary,  stay the operation of such order for such period as  he deems fit and 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 or directing a fresh  assessment.

       (3) The Additional Commissioner or the  Commissioner shall not exercise any power under  sub-section (1) or sub-section (2), as the case may  be, if -                

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       (a) the time for appeal against the order has  not expired;

       (b) the matter has been subject to an appeal  under Section 22 or a revision in the High Court;  or

       (c) more than four years have expired after  the passing of the order sought to be revised.

       (4) Notwithstanding anything contained in  sub-section (3), the Additional Commissioner or  the Commissioner, may pass an order under sub- section (1) or (2), as the case may be, on any point  which has not been raised and decided in an appeal  or revision referred to in clause (b) of sub-section  (3), before the expiry of a period of one year from  the date of the order in such appeal or revision or  before the expiry of a period of four years referred  to in clause (c) of that sub-section whichever is  later.

       (5) Every order passed in revision under  sub-section (1) shall, subject to the provisions of  sub-section (2) of this section, sections 23, 24 and  25A, be final.

       (6) Every order passed in revision under  sub-section (2) shall, subject to the provisions of  sections 23, 24 and 25A, be final.

       Explanation I: If the order passed or  proceedings recorded by the appropriate authority  referred to in sub-section (1) or (2), involves an  issue on which the High Court has given its  decision adverse to the revenue in some other  proceedings and an appeal to the Supreme Court  against such decision of the High Court is  pending, the period spent between the date of the  decision of the High Court and the date of the  decision of the Supreme Court shall be excluded  in computing the period preferred to in clause (c)  of sub-section (3).

       Explanation II: In computing the period of  limitation for the purpose of sub-section (3), any  period during which any proceeding under this  section is stayed by an order or injunction of any  Court shall be excluded.

       Explanation III: For the purpose of this  Section, ’record’ shall include all records relating  to any proceedings under this Act available at the  time of examination by the Additional  Commissioner or the Commissioner."

       Section 18A of the Act prohibits excess collection of tax by an  assessee. If any person contravenes Section 18, penalty is provided  under Section 18A of the Act. The question is when at the time of  assessment, if no penalty is imposed by the Assessing Authority, can  the Revisional Authority, by invoking his suo motu powers under  Section 22A of the Act impose penalty for the first time on the  ground that the order of assessment is prejudicial to the interests of  the Revenue?

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       Section 22A of the Act is extracted above. The words used in  the Karnataka Act are different from the words used in other States’  Sales Tax enactments. The words viz., ’pass such order thereon as  the circumstances of the case justify’  is not incorporated in the other  Acts. Also under Section 22A of the Act,  the revisional authority  may enhance or modify the assessment or even cancel an assessment  and  direct fresh assessment.  This indicates that the assessment  proceedings are before the revisional authority who can pass such  orders which the adjudicating authority could or should have done.   Hence, if penalty under Section 18A is warranted, and the same is not  levied by the Assessing Authority, then, the Additional  Commissioner/Revisional Authority in his suo motu powers may  impose penalty on the ground that ’the circumstances of the case  justifies the levy of penalty’.          However, in the following cases, it has been held that  assessment proceedings and penalty proceedings are distinct and  different. Therefore, if no penalty is levied in the order of assessment,  then legally there is no ’order’ imposing penalty. In the absence of an  order imposing penalty, the Revisional Authority cannot invoke its  powers of suo motu revision.  

(a) Dy. Commissioner of Commercial Taxes, Madurai  Division, Madurai vs. K.M. Thomas & Co. ,31 STC 529  (Madras)                  (b) Khemchand Rajkumar vs. State of T.N., (supra)

       (c) Bhavnagar Chemical Works (1946) Ltd. vs.  Commissioner of Sales Tax, Ahmedabad, 83 STC 409 (Gujarat): In  this case, power to impose tax for the first time by the Revisional  Authority is justified. However, it was held that when the Revisional  Authority did not impose penalty then the Revisional Authority  cannot impose the same for the first time.

       (d) Tata Exports Ltd. vs. State of Maharashtra, 98 STC 314  (Bombay): In this case, the Bombay High Court followed the  judgment in Shetkari Sahakari Sakhar Karkhana Ltd.  & Anr.  Vs. State of Maharashtra & Ors.,(supra).  Shetkari Sahakari  Sakhar Karkhana Ltd.’s case (supra), the Bombay High Court also  followed the judgment in Khemchand Rajkumar’s case (supra).

       In the case of  State of Haryana vs. Dasunda Singh Waryam  Singh, 103 STC 128 (Punjab & Haryana) Ashok Bhan, J followed the  judgments in Dy. Commissioner of Commercial Tax, Madurai  Division, Madurai vs. K.M Thomas & Co. (supra) and  Bhavnagar  Chemical Works’s case (supra).

       Other State Enactments: provisions based on which the  above cases were decided:         (i) Section 32(1) of Tamil Nadu General Sales Tax Act,  1959: Special Powers of the Deputy Commissioner:         The Deputy Commissioner may, on his own motion, call for  and examine an order passed or proceeding recorded by the  appropriate authority under Section 4A, Section 12, Section 12A,  Section 14, Section 15, or sub-sections (1) and (2) of Section 16 and  if such order or proceeding recorded is prejudicial to the interests of  Revenue, may make such inquiry or cause such inquiry to be made  and, subject to the provisions of this Act, may initiate proceedings to  revise, modify or set aside such order or proceedings and may pass  such order thereon as he thinks fit.

       (ii) Section 34(1) of Tamil Nadu General Sales Tax Act,  1959: Special Powers of Joint Commissioner of Commercial Taxes:         The Joint Commissioner of Commercial Taxes may, on his  own motion, call for and examine an order passed or proceedings

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recorded by the appropriate authority under Section 4A, Section 12,  Section 12A, Section 14, Section 15 or sub-section (1) or (2) of  Section 15 or an order passed by the Appellate Assistant  Commissioner under sub-section (3) of Section 31 or by the  Appellate Deputy Commissioner under sub-section (3) of Section  31A or by the Deputy Commissioner under sub-section (1) of Section  32 or sub-section (3) of Section 33 and if such order or proceeding  recorded is prejudicial to the interests of the Revenue, may make  such inquiry or cause such inquiry to be made and, subject to the  provisions of this Act, may initiate proceedings to revise, modify or  set aside such order or proceedings and may pass such order thereon  as he thinks fit.         (iii) Provisions of Section 67(1)(a) of the Gujarat Sales Tax  Act, 1969 (1 of 1970):(considered in 83 STC 409) Section 67(1)(a):

       The Commissioner on his own motion within three years (or on  application made to him within one year) from the date of any order  passed by any Officer appointed under Section 27 to assist him, may  call for and examine the record of any such order and pass such order  thereon as he thinks just and proper.         (iv) Provisions of Section 57(1)(a) of the Bombay Sales Tax  Act, 1959 (51 of 1959), as considered by the Bombay High Court in  Tata Exports Ltd.’s case(supra):         Section 57(1)(a):

       Revision: (1) Subject to the provisions of Section 56 and to  any rules which may be made in this behalf-         (a) the Commissioner may, on his own motion, call for and  examine the record of any order passed (including an order passed in  appeal) under this Act, or the Rules made thereunder by any officer  or person subordinate to him and pass such order thereon as he thinks  just and proper.

       (v) Provisions of Section 40(1) of the Haryana General Sales  Tax Act (20 of 1973): (as considered by Punjab and Haryana High  Court in State of Haryana vs. Dasunda Singh Waryam Singh  (supra).  

       Section 40: Revision:

       (1) The Commissioner may on his own motion call for the  record of any case pending before, or disposed of by, any assessing  authority or appellate authority, other than the Tribunal, for the  purpose of satisfying himself as to the legality or to the propriety of  any proceedings or of any order made therein and may pass such  order in relation thereto as he may think fit:

       Provided that no order shall be so revised after the expiry  of a period of eight years from the date of the order:

       Provided further that the aforesaid limitation of period  shall not apply where the order in a similar case is revised as a  result of the decision of the Tribunal or any Court of law:

       Provided further that the assessee or any other person  shall have no right to invoke the revisional powers under this  sub-section.

       (vi) Under the Tamil Nadu General Sales Tax Act, 1959,  Sections 32 and 34 provide that the revisional authority ’may make  such inquiry or cause such inquiry 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 thereon

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as he deems fit.’

       (vii) Under the Gujarat Sales Tax Act, Section 67(1)(a)  provides that ’the Commissioner on his own motion within three  years (or on application made to him within one year) from the date  of any order passed by any Officer under Section 27 to assist him,  may call for and examine the record of any such order and pass such  order thereon as he thinks just and proper.’

       (viii) Under the Bombay Sales Tax Act, Section 57(1)(a)  provides that ’the Commissioner may, on his own motion, call for and  examine the record of any order passed (including an order passed in  appeal) under this Act, or the Rules made thereunder by any Officer  or person subordinate to him and pass such order thereon as he thinks  fit and proper.’

       (ix) A close scrutiny of Section 40(1) of the Haryana General  Sales Tax Act would show that the revisional authority can call for  the record of any case pending or disposed of for the purposes of  satisfying himself as to the legality or to the propriety of any  proceedings or of any order made therein and may thereafter proceed  to pass such order in relation thereto as he deems fit.

       (x) In   24 STC 491, a Bench of three Judges of  this Court  held that while exercising revisional jurisdiction, the revisional  authority would be restricted to the examination of the record for  determining whether the order of assessment was according to law.         (xi)In view of the words viz., "...pass such order thereon as  the circumstances of the case justify..." including an order  enhancing or modifying the assessment or cancelling the assessment  or directing a fresh assessment in the Karanataka Sales Tax Act, it is  possible to hold that even if no penalty is levied in the order of  assessment, the revisional authority is justified in imposing the same  by virtue of the special powers given to him under the statute.         It must be noted that there is a difference between exercise of  revisional powers over orders passed by lower authority and exercise  of revisional powers in the assessment proceeding itself.  A revision  of an order may be confined to what the order contains or dealt with.   But when the assessment proceedings themselves are before the  revisional authority it can go beyond the order of the assessing  authority and pass such orders as the assessing authority could or  should have passed.          The special provision available under Section 22A (4) of the  Karnataka Sales Tax Act enables the Commissioner/Additional  Commissioner not only to revise the order but also to reassess and  pass orders on a point not decided, or dealt with in the order of  assessment.         We have also perused the assessment proceedings. It has been  concluded in the said proceedings that the assessee had filed an  incorrect return and therefore, the amount of tax payable by the  assessee concerned was determined. The said determination has not  been questioned and, therefore, has become final. The Assessing  Authority had not considered the question of the excess sales tax  illegally collected by the assessee and therefore, the assessee had not  been dealt with in respect of its said violation of Section 18 of the  Act. On a departmental statutory review of the assessment order, the  Revising Authority having come to the conclusion that the  assessment order was erroneous and prejudicial to the interest of the  State decided to initiate suo motu revision proceedings under Section  22A of the Act.          It would be seen that the revisional proceedings were  commenced, on the sole ground relating to levy of penalty and the  said aspect of the matter was specifically put to the assessee by  means of Annexure R-1, notice. Hence, in any view of the matter, the  revisional proceedings whether treated as a part of the assessment

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proceedings the matter had been initiated and disposed of solely on  the question of levy of penalty.  At the time of hearing, no procedural or substantive error in the  passing of the impugned order of the Revising Authority has been  brought to light. The requirements of law relating to the passing of an  order under Section 18A read with Section 22A of the Act  have been  duly complied with and no legal prejudice has been shown to be  caused to the assesee-appellant. The quantum of penalty levied being  a discretionary matter, it is not normally liable to be questioned or  reviewed.  

       The argument of the learned counsel for the appellant that the  Revising Authority or the Appellate Authority higher than the  Assessing Authority is not competent to levy a penalty for the first  time when no penalty has been levied by the Assessing Authority is  wholly untenable, without statutory basis and unreasonable from any  point of view. The said plea is liable to be rejected. The necessity for  there to be an order under Section 18A for the exercise of revisionary  jurisdiction under Section 22A is once again fallacious. The non-levy  of penalty is itself an illegality caused by a failure to exercise the  jurisdiction by the Assessing Authority and therefore, prejudicial to  the interests of the Revenue.          Hence, in our opinion, the levy of penalty by means of an order  in revision proceedings is reasonable, just and proper and therefore,  not liable to be faulted. The order passed by the Division Bench of  the High Court of Karnataka  is perfectly justified and is in order.  For the foregoing reasons, we see no merit in these two  appeals. Accordingly, both the appeals shall stand dismissed.  However, there will be no order as to costs.