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PETITIONER: STATE OF KERALA

       Vs.

RESPONDENT: SHRI M. APPUKUTTY

DATE OF JUDGMENT: 11/10/1962

BENCH: KAPUR, J.L. BENCH: KAPUR, J.L. SHAH, J.C.

CITATION:  1963 AIR  796            1963 SCR  Supl. (1) 563  CITATOR INFO :  D          1976 SC1545  (18)

ACT: Sales   Tax-Escaped  turnover-Issue  of  notice  by   Deputy Commissioner-Jurisdiction-Rules,   if   ultra   vires-Madras General Sales Tax Act, 1939 (Madras IX of 1939), ss. 9  (1), 9(2),  12 (2), 19 (1), 19 (2) (f)-Madras General  Sales  Tax Rules, rr. 17(1), 17A (1A), 17 (3A).

HEADNOTE: The  Deputy Commercial Tax Officer imposed sales  tax  under the  Madras General Sales Tax Act, 1939, on  the  respondent for  the  assessment year and the appeal taken  against  the assessment  order  was  dismissed.   Thereafter  the  Deputy Commissioner  of Commercial Taxes issued a notice  proposing to  determine  the  escaped  turnover  for  the  period   of assessment and in pursuance of this notice he determined the revised  turnover.  On the dismissal of the appeal filed  by the  respondent before the Sales Tax Appellate Tribunal  lie filed  a revision petition before the High Court.  The  High Court  allowed the revision petition on the ground that  the notice  by the Deputy Commissioner of Commercial  Taxes  was issued without jurisdiction. The State appealed to the Supreme Court with special  leave. The main questions in the appeal were whether the notice was issued  without  jurisdiction and whether  the  rules  under which the notice was issued were ultra vires the Act. Held,  that the power of the Deputy Commissioner  to  assess escaped turnover under r. 17 (3A) framed under s. 19 of  the Act  does  not  arise out  of  the  revisional  jurisdiction exercised  tinder  s.  12  (2)  of  the  Act.   The   Deputy Commissioner  is therefore not bound to restrict himself  to the examination of the 564 evidence  already on record.  Section 9 does not  deal  with escaped turnover but is a provision for determination of the turnover  of a dealer in the first instance.  Rule 17  deals with  a separate and independent jurisdiction in  regard  to determining  and  taxing  escaped turnovers.   There  is  no conflict  between s. 12 (2) and rr. 17 (1), 17 (IA)  and  17 (3A).    Therefore  the  notice  was  not   issued   without jurisdiction,  nor  was  r. 17  (1)  vires  the  substantive

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provisions of the Act. King Emperor v. Sibnath Banerji, (1945) L. R. 72 I. A.  241, followed. State of Madras v. Louis Dreyfus & Co. Ltd., (1955) 6 S.   T. C. 318, distinguished.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 621 of 1961. Appeal  by special leave from the judgment and  order  dated September 25, 1958, of the Kerala High Court in Tax Revision Case No. 11 of 1957. S.   T. Desai and V. A. S. Muhammed, for the appellant. T. V. R. Tatachari, for the respondent. 1962.  October 11.  The judgment of the Court was  delivered by KAPUR,  J.-In  this  appeal by  special  leave  against  the judgment  and  order  of  the  High  Court  of  Kerala   the appellant is the State of Kerala and the  respondent is  the assessec.   The appeal arises out of proceedings  under  the Madras  General Sales Tax Act, 1939, (Madras Act No.  IX  of 1939) read with the rules made under s. 19 of that Act.   In this judgment the former will be referred to as the Act  and the  latter  as  the  rules.   The  area  of  Kozhikode  was originally  within  the State of Madras, but by  the  States Reorganisation  Act was transferred to the State of  Kerala. The  Madras  General Sales Tax Act,  however,  continued  to apply.  565 The  assessment period for the purposes of the  turnover  in dispute  is 1952-53.  By an order dated March 27,  1954  the Deputy Commercial Tax Officer, Kozhikode, imposed sales  tax on  the respondent on a net turnover of  Rs.  12,56,178-14-0 and  the appeal taken against that order to  the  Commercial Tax  Officer was dismissed.  On March 15, 1956 a notice  was issued  by  the  Deputy  Commissioner  of  Commercial  Taxes against  the  assessee proposing to  determine  the  escaped turnover  for the period of assessment.  By an  order  dated March  31,  1956,  the Deputy  Commissioner  determined  the revised turnover.  An appeal was taken against that order to the  Sales  Tax  Appellate Tribunal,  Trivandrum,  but  that appeal was dismissed on March 23, 1957.  Against that  order a  revision  was taken to the Kerala High Court and  by  its judgment  dated September 25, 1958 the High Court set  aside the order of the Deputy Commissioner on the ground that  the notice issued by the Deputy Commissioner of Commercial Taxes was  without  jurisdiction and the order  of  the  appellate tribunal  was therefore erroneous.  Another  question  which had  been raised before the High Court that the  rule  under which  the  Deputy Commissioner purported to act  was  ultra vires the Act was not decided because of the decision on the first question i.e. of,jurisdiction.  Against that  judgment and order the State of Kerala has come in appeal by  special leave to this court. In appeal, before us, two main contentions have been raised: One on behalf of the appellant  the State of Kerala that the notice  issued  by the Deputy Commissioner was  not  without jurisdiction  and the High Court’s opinion on that point  is erroneous;  and  the  second on  behalf  of  the  respondent assessee  that  if the notice was not  without  jurisdiction then  the rule under which the notice was issued  was  altra vires  as  it was beyond the substantive provisions  of  the Act.   For this purpose it is necessary to refer to some  of the relevant provisions of the Act and the

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566 rules.   The  procedure  to be followed  and  the  power  of assessment  of the Assessing Authority is contained in s.  9 of  the Act and we need only quote sub-ss.  1 and 2 of  that section which read as under:-               "9  (1)  Every dealer whose  turnover  is  ten               thousand rupees or more in a year shall submit               such   return  or  returns  relating  to   his               turnover  in  such  manner  and  within   such               periods as may be prescribed.               (2) (a)    If   the  assessing  authority   is               satisfied that any return submitted under sub-               section (1)        is correct and complete, he               shall assess the dealer on the thereof.               (b)   If no return is submitted by the  dealer               under   sub-section   (1)  before   the   date               prescribed  or specified in that behalf or  if               the  return  submitted by him appears  to  the               assessing   authority  to  be   incorrect   or               incomplete,  the  assessing  authority   shall               assess the dealer to the best of his judgment.               Provided Section  11 deals with appeals and s. 12 with the  power  of the  Sales tax authorities to pass orders in revision.   One of the arguments relating to ultra vires was based on sub-s. 2 of s. 12 of the Act.  That sub-section is as follows:- "S. 12 (1) The Commercial Tax Officer may(i) (i)....................... (ii)...................... (2)  The Deputy Commissioner may- (i)  suo motu or                             567               (ii)  in   respect  of  an  order  passed   or               proceeding  recorded  by  the  Commercial  Tax               Officer  under  sub-section (1) or  any  other               provision  of  this Act and against  which  no               appeal  has been preferred to the  _Appellants               Tribunal  under s. 12 A on  application,  call               for and examine the record of any order passed               or proceeding recorded under the provisions of               this  Act by any Officer subordinate  to  him,               for  the purpose of satisfying himself  as  to               the legality or propriety of such order, or as               to  the regularity of such proceeding and  may               pass  such  order with respect thereto  as  he               thinks fit". Section 12-A provides for appeals to the Appellate  Tribunal and  s.  12-B for revision to the High  Court.   Section  19 gives power to the Government to make rules and the relevant provisions of that section are 119 (1) and   19   (2)   (f). They are as under:-               "19 (1)    The State Government may make rules               to carry out the purposes of this Act".               (2)   In  particular and without prejudice  to               the  generality of foregoing power such  rules               may provide for-               (f)   the assessment to tax under this Act  of               any turnover which has escaped assessment  and               the period within which such assessment may be               made, not exceeding three years; " Under  the rule making power conferred by s. 19  rules  have been framed and we are concerned in this appeal with rr.  17 (1), 17 (IA) and 1.7 (3A).  They read as under:- 568               "17  (1)  If for any reason the whole  or  any

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             part  of the turnover of business of a  dealer               or licensee has escaped assessment to the  tax               in any year or if the licence fee has  escaped               levy  in any year, the assessing authority  or               licensing  authority,  as  the  case  may  be,               (subject to the provisions) in sub-rule  (1-A)               may,  at  any  time within  three  years  next               succeeding  that which the tax or licence  fee               relates (determine to the best of his judgment               the turnover which has escaped assessment  and               assess  the tax payable in such  turnover)  or               levy the licence fee after issuing a notice to               the  dealer or licensee and after making  such               enquiry as he considers necessary".                "17  (1A)  Where in respect of  the  turnover               referred to in sub-rule 1 an order has already               been  passed  under  section  11  or  12   the               assessing authority shall make a report to the               appropriate appellate or revising authority as               the  case may be, which shall thereupon  after               giving   the   dealer   concerned   reasonable               opportunity  of being heard, pass such  orders               as it deems fit".                " 17 (3A) The powers conferred by sub-rules 1               and  3  on assessing  authority  or  licensing               authority may also be exercised by the  appel-               Iate  authority referred to in section II;  or               as the case may be, by the revising  authority               referred to in section 12, at any time  within               a   period  of  three             years   next               succeeding that which the tax, or as the  case               may be, the licence fee relates provided  that               such   authority   shall  give   the,   dealer               concerned  a reasonable opportunity  of  being               heard  before, passing orders under this  sub-               rule".                             569 We  shall first take up the question of jurisdiction  raised by  the  appellant.   The  tribunal  held  that  the  powers conferred  on  the Deputy Commissioner of  Commercial  Taxes under s. 12(2) and r. 17(3A) are distinct powers and  action taken  under r. 17(3A) was not without  jurisdiction.   This finding  was  reversed  by the High  Court.   Now  s.  12(2) confers on the Deputy Commissioner the power suo motu or  on an  application  to call for and examine the record  of  the proceedings  of  any  officer  subordinate  to  the   Deputy Commissioner for the purpose of satisfying himself as to the legality  or  propriety of such order and he can  pass  such order   with  respect  thereto  as  he  thinks   fit.    The respondent’s argument was, and that argument was accepted by the High Court, that this provision contains the totality of the  powers  of  the Deputy Commissioner and  the  power  to assess escaped turnover is merely incidental to the power of revision and may be exercised only when revisional jurisdic- tion  under s. 12(2) is invoked under that section  and  the record  is  sent  for suo motu or  on  application  and  the legality  or propriety of the order made by the  Subordinate Officer  is scrutinized.  Therefore the Deputy  Commissioner was  not  in the absence of any substantive  proceeding  for exercise  of revisional powers competent to  assess  escaped turnover.  But the power to assess escaped turnover does not arise  out  of the revisional jurisdiction.   In  exercising revisional  jurisdiction  the Deputy Commissioner  would  be restricted to the examination of the record for  determining whether the order of assessment was according to law.   Rule

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17  confers  power  to assess  escaped  turnover  which  may normally  be  exercised  on matters  dehors  the  record  of assessment  proceedings  before the  Deputy  Commercial  Tax Officer.  It is true that the substantive provisions of  the Act  do not expressly deal with the power and procedure  for assessment of escaped turnover, the legislature has left  it to  be dealt with by statutory rules to be framed  under  s. 19,  and r. 17 has been framed thereunder.  Rule  17(1)  and (3A) 570 ex  facie Properly fall under s. 19(2)(f).  In any event  as was  said  by the Privy Council in King Emperor  v.  Sibnath Banerji(1) the rule making power is conferred by sub-s.  (1) of  that  section and the function of subs.  (2)  is  merely illustrative and the rules which are referred to in sub-s. 2 are authorised by and made under sub-s. 1. The provisions of sub-s.  2  arc not restrictive of sub-s.  (1)  as  expressly stated in the words "without prejudice to the generality  of the  foregoing power with which sub-s. (2) begins and  which words arc similar to the words of sub-s. (2) of s. 2 of  the Defence   of   India  Act  which  the  Privy   Council   was considering.   Now  sub-s.  1 of s. 19 of the  Act  provides that  "the State Government may make rules to carry out  the purposes  of this Act" and the long title of the Act  is  an Act  to, provide for the levy of general tax on the sale  of goods  in the State of Madras.  Therefore in our opinion  r. 17 and the various clauses thereof made under s. 19 are  not beyond  the  rule making power of the  State  Government  as contained in s. 19. The  first  sub-rule of r. 17 provides  that  the  assessing authority may subject to sub-r.  IA at any time within three years  next  succeeding  that  to  which  the  tax   relates determine  the  turnover which has  escaped  assessment  and assess the tax payable on such turnover.  That is the  power of the assessing authority. Sub-rule  IA  deals  with those cases  where  an  order  has already  been passed by the appellate authority under s.  11 or  by a revising authority under s. 12. In those cases  the assessing authority has to make a report to the  appropriate appellate  or  revising authority and  that  authority  can, after giving  the dealer concerned reasonable opportunity of being  heard  pass such orders as it thinks fit.   There  is then a third case and that is where there has been no appeal or revision under ss. 11 and 12 of the Act and therefore (1)  (1945) L. R. 72 I. A. 241.  571 no  order  of  the  appellate  authority  or  of  revisional authority  as  contemplated in s. 12(2) of the  Act  and  in those   cases  the  appellate  authority  or  the   revising authority as the case may be has, under sub-r.(3A), the same power  as the assessing authority had under sub-r.  1 of  r. 17.   In the present case after an appeal to the  Commercial Tax  Officer there was no further proceeding  and  therefore the Deputy Commissioner who is the revising authority  acted under  r.  17 (3A) and issued a notice which,  according  to that sub-rule he had power to issue and then determined  the escaped  turnover.   We have already held that r.  17  is  a valid rule under s. 19 of the Act.  Sub-rule 3A of r. 17  on its plain construction confers jurisdiction on the  revising authority to issue the notice which it did issue and in  our opinion,  and we say, so with respect, the judgment  of  the High  Court is, to that extent, erroneous and it  cannot  be said  that the notice was without  jurisdiction.   Therefore the impugned order was not incorrect. The respondent then argued that r. 17 is ultra vires of  the

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provisions  of  the Act and he put his argument  like  this; that the power to assess is given to the assessing authority under  s.  9(1)  & (2) which has  been  quoted  above.   The assessing  authority  is defined in S. 2(a-2)  to  mean  any person authorised by the State to make any assessment  under this Act.  Therefore the assessment of escaped turnover  can only be done, if at all, by an "assessing authority" and not by a revising authority as he has not been authorised by the State  Government.   The answer to this is in s.  2B.   That section  authorises the State Government to appoint as  many Deputy  Commissioners of Commercial Taxes as it  thinks  fit for  the  purpose of performing the functions  conferred  on them  under  the Act add such officers shall  perform  their functions within such local limit as the State Government in this  behalf  may assign to them.  Rule 17  confers  on  the Deputy Commissioners the power to determine and 572 tax  escaped  turnovers in cases where revisions  have  been taken to them (sub-r.  IA) and also where revisions have not been  taken to them (sub-r. 3A).  Provisions of s. 9(1)  and (2)  therefore  are  no  bar to the  exercise  of  power  of assessing  escaped turnovers.  Moreover s. 9 does  not  deal with   escaped  turnovers  but  is  a  provision   for   the determination  of  the  turnover of a dealer  in  the  first instance  nor can it be said that r. 17 is in conflict  with s. 12(2).  That section deals with another state of  affairs and another jurisdiction i.e. where the Deputy  Commissioner suo motu or on an application made calls for the record  and determines the legality or propriety of an order made by one of  the subordinate officers.  It cannot be said in view  of r. 17 that the power of revision by the Deputy Commissioners is  limited to powers under s. 12(2).  Rule 17 deals with  a separate  and  independent  jurisdiction in  regard  to  the determining and taxing escaped turnovers.  The provisions of s. 12(2) are in no way in conflict with the powers conferred under r. 17(1), 17(IA) and 17(3A). The  further  argument that sub-r. 3A is confined  to  cases where  the revision filed under s. 12(2) is pending  is  not supported  by the language of that-rule.  Our attention  was drawn to the judgment of the Madras High Court in the  State of Madras v. Louis Dreyfus & Co. Ltd.(1) But that case  does not deal with r. 3A which came into force later. In our opinion the order of the High Court is erroneous  and must be set aside.  The appeal is allowed with costs.                       Appeal allowed. (1) (1955) 6 S.T.C. 318,328,  573