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PETITIONER: THVL BOMBAY AMMONIA PVT. LTD.

       Vs.

RESPONDENT: STATE OF TAMIL NADU

DATE OF JUDGMENT24/03/1976

BENCH: SINGH, JASWANT BENCH: SINGH, JASWANT RAY, A.N. (CJ) BEG, M. HAMEEDULLAH

CITATION:  1976 AIR 2136            1976 SCR  (3) 856

ACT:      Madras General Sale Tax Act, 1959 s. 32-Suo Motu Power- Scope of  exemption-Exemption not claimed before assessment- Appeal not preferred-If could plead mistake later.

HEADNOTE:      The appellant  submitted a sales-tax return showing the taxable turnover.  The assessing  authority, while  checking the accounts,  discovered an  undisclosed turnover. He added that sum to the turnover and then assessed sales-tax on that turnover. The  appellant did not file any appeal against the assessment order.  The  Deputy  Commissioner  of  Sales  Tax issued a  notice to  the appellants  in exercise of suo motu power of revision under s. 32 of the Madras Sales-tax Act to show cause why a penalty should not be imposed in respect of the undisclosed  turnover. While challenging the exercise of this power  the appellant alternatively prayed for exemption in respect of a sum representing works contracts which, they alleged, did  not amount  to sale of goods. The first ground was rejected.  On the  second ground  it was held that since the appellants  did not file an appeal in the regular course against the  assessment order  they  were  not  entitled  to exemption. On  appeal, the  Appellate Tribunal  allowed  the claim for  exemption on the ground that it represented works contract.      The High  Court in  revision set aside the order of the Tribunal granting exemption.      Dismissing the appeal, ^      HELD :  The suo  motu power  of revision  of the Deputy Commissioner in  s. 32  is wide and can be exercised both in favour of  the revenue  as well as the tax-payer in order to correct any  error or  illegality committed by the assessing authority in his order of assessment. [860D]      State of  Kerala v.  K. M.  Cheria Abdulla  and Company (1965) 16 S.T.C. 875 [1965] 1 S.C.R. 601 and The Swastik Oil Mills Ltd. v. H. B. Munshi Deputy Commissioner of Sales Tax, Bombay (1968) 21 S.T.C. 383 referred to.      But in  the present  case the  Deputy Commissioner  was right in refusing to exercise his revisional power in favour of the  appellants and the High Court was right in reversing the order  of the  Appellate Tribunal.  At no  stage of  the

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proceedings before  the assessing authority did the assessee bring  it   to  the  assessing  authority’s  notice  that  a substantial  portion   of  the  turnover  related  to  works contracts  and   as  such  exempt  from  liability  to  tax. Secondly,  the   appellants  acquiesced   in  the  order  of assessment passed  by the  assessing authority  and did  not prefer any  appeal. In face of the decision of this Court in State of  Madras v. Gannon Dunkerley and Co. Ltd. [1959] SCR 379 the  appellants cannot  plead that  they did  not  claim exemption   under   the   mistaken   impression   that   the transactions amounted to sale of goods. [860 E G; 861 B]

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1699 of 1973.      Appeal by  Special Leave  from the  Judgment and  order dated 4-5-73  of the  Madras High  Court in  T.C. No. 223 of 1969.      K. S.  Ramamurthi and  (Mrs) S.  Gopalakrishna, for the appellant. 857      P. Ram  Reddy, A.  V. Rangam  and (Miss) A. Subhashini, for the respondent.      The Judgment of the Court was delivered by      JASWANT SINGH,  J. This  is an  appeal by special leave against the  judgment and  order dated May 4, 1973 passed by the High Court of Madras in T.C. No. 223 of 1969.      It appears  that the  appellants  who  are  dealers  in refrigerators, spare  parts etc.  submitted a return for the year 1964-65  to the  Joint Commercial  Tax officer,  Madras (hereinafter called  the ’Assessing  Authority’)  under  the Madras General  Sales Tax Act, 1959 (hereinafter referred to as ’the  Act’) showing  a  total  taxable  turnover  of  Rs. 6,41,031.77. On checking the accounts of the appellants, the Assessing Authority by its order dated January 31, 1966 made an addition of Rs. 33,710.88 to the turnover reported by the appellants and assessed the sales tax on the turnover of Rs. 6,74,742.65. The  appellants did  not choose  to  prefer  an appeal against this assessment.      On January 7, 1967, the Deputy Commissioner, Commercial Taxes, Madras Division, in exercise of his suo motu power of revision under  section 32 of the Act issued a notice to the appellants calling  upon them to show cause why a penalty of Rs. 5,056/-  on the  aforesaid undisclosed  turnover of  Rs. 33,710.88 be not levied against them.      In response  to the  notice, the  appellants  submitted their objections  challenging the jurisdiction of the Deputy Commissioner to  levy the proposed penalty and requested him to drop  the proceedings.  In the  alternative, they  prayed that they  should be  granted exemption  in respect  of  Rs. 6,32,142/- which  represented works  contracts for  complete fabrication, erection  and installation  or air-conditioning plants with  their employers which did not amount to sale of goods.      The Deputy Commissioner negatived the contention of the appellant regarding  his jurisdiction  to levy  the penalty, and revising  the assessment levied a penalty of Rs. 3,371/- under section 12(3) of the Act. The Deputy Commissioner also declined to  allow the  aforesaid exemption  claimed by  the appellants on  the ground that they ’did not file appeals in the regular  course as contemplated by the provisions of the Act’.      The appellants went up in appeal from this order to the

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Sales Tax  Appellate  Tribunal,  Madras,  who  substantially allowed the  appeal, cancelled the penalty and acting on the statements  of   transactions  filed   before  him   by  the appellants allowed an exemption for tax on a turnover of Rs. 5,99,468/- as  representing the works contracts holding that as suo  motu power  of revision  could be  exercised by  the Deputy Commissioner  both for  the benefit  of the State and the taxpayer,  he should  have gone  into  the  question  of exemption and  set right  the  assessment  by  allowing  the exemption on the turnover relating to works contracts.      Aggrieved by  this order  of the  Sales  Tax  Appellate Tribunal. the  respondent filed  a petition under section 38 of the  Act to  the High  Court of  Judicature at Madras for revision of the order of the Sales 858 Tax Appellate  Tribunal. The High Court allowed the revision petition in  part and set aside the order of the Tribunal in so far  as it related to the deletion of the turnover of Rs. 5,99,468/-.      Counsel for  the appellant  has urged before us that as the suo  motu power  of revision under section 32 of the Act is wide  enough and  can be  exercised both in favour of the revenue as  well as  the assessee  regardless  of  the  fact whether the  latter has filed an appeal against the order of assessment or not, the High Court ought not to have reversed the order  of the Sales Tax Appellate Tribunal in respect of the turnover  of  Rs.  5,99,468/-  which  related  to  works contracts.      Two questions  arise for  determination in this appeal. Firstly, what  is the  scope of  the suo  motu  power  under section  32   of  the  Act.  Secondly,  whether  the  Deputy Commissioner rightly  refused to  exercise discretion  under section 32 of the Act in favour of the appellants.      For the  determination of  the first  question,  it  is necessary to  refer to  section 32  of the Act which runs as follows:-      "32. Special powers of the Deputy Commissioner.-      (1) The  Deputy Commissioner  may, of  his own  motion,      call for  and examine  an order  passed  or  proceeding      recorded by  the appropriate authority under section 4-      A, section  12, section 14, section 15, or sub-sections      (1) and  (2) of section 16 and may make such inquiry or      cause such  inquiry to  be made  and,  subject  to  the      provisions of  this Act, may pass such order thereon as      he thinks fit.      (2) The  Deputy Commissioner  shall not  pass any order      under sub-section (1), if-      (a) the  time for  appeal against  the  order  has  not expired;      (b) the order has been made the subject of an appeal to      the Appellate  Assistant Commissioner  or the Appellate      Tribunal, or of a revision in the High Court; or      (c) more than five years have expired after the passing of the order.      (3) No  order under  this section adversely affecting a      person shall  be passed  unless that  person has  had a      reasonable opportunity of being heard.      (4) In  computing the  period referred to in clause (c)      of  sub-section   (2),  the   time  during   which  the      proceedings before  the  Deputy  Commissioner  remained      stayed under  the order  of  a  Civil  Court  or  other      competent authority shall be excluded."      The language  of this  section makes  it clear that the suo motu  power conferred  on  the  Deputy  Commissioner  in regard to the order or proceeding specified therein is quite

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wide and he can, subject to the conditions laid down in sub- sections (2) and (3), exercise the 859 same even  at the  instance of an assessee who has not filed an appeal  against the  order for  the purpose of rectifying any illegality or impropriety therein.      This  section   has  also   been  subject   matter   of interpretation in two  decisions of this Court viz. State of Kerala v.  K. M.  Cheria Abdulla,  and  Company(1)  and  The Swastik Oil  Mills Ltd.  v. H. B. Munshi Deputy Commissioner of Sales Tax, Bombay(2). In the case of K. M. Cheria Abdulla and Company  (supra) the  majority held as follows in regard to the scope of the revisional power:-      "The Deputy Commissioner is thereby invested with power      to satisfy  himself about  the legality or propriety of      any order  passed or proceeding recorded by any officer      subordinate to him, or the regularity of any proceeding      of such  officer, and  to pass such orders with respect      thereto as he thinks fit. For exercising this power, he      may suo motu or on application call for and examine the      record of  any proceeding  or order.  There is no doubt      that the  revising authority  may  only  call  for  the      record of  the order  or the proceedings and the record      alone may  be scrutinised for ascertaining the legality      or  propriety   of  an   order  or  regularity  of  the      proceeding. But  there is  nothing in  the Act that for      passing  an   order  in   exercise  of  his  revisional      jurisdiction, if  the revising  authority is  satisfied      that  the   subordinate  officer   has   committed   an      illegality or  impropriety in the order or irregularity      in the  proceedings,  he  cannot  make  or  direct  any      further enquiry.......  It  is,  therefore,  not  right      baldly to  propound that  in passing  an order  in  the      exercise of  his revisional  jurisdiction,  the  Deputy      Commissioner must  in all  cases be  restricted to  the      record maintained  by the  Officer subordinate  to him,      and can  never make enquiry outside that record........      Jurisdiction to  revise the  order or  proceeding of  a      subordinate officer has to be exercised for the purpose      of rectifying  any illegality  or  impropriety  of  the      order or irregularity in the proceeding."      The  limitations  to  which  the  revisional  power  is subject were indicated by the majority thus :-      "It would  not invest the revising authority with power      to launch  upon enquiries at large so as to trench upon      the powers  which are  expressly reserved by the Act or      by the  Rules to  other authorities  or to  ignore  the      limitations inherent  in the  exercise of those powers.      For instance, the power to reassess escaped turnover is      primarily vested  by rule  17 in  the assessing officer      and is  to be exercised subject to certain limitations,      and the  revising authority  will not  be competent  to      make an  enquiry for reassessing a taxpayer. Similarly,      the power  to make a best judgment assessment is vested      by section  9(2) (b) in the assessing authority and has      to be exercised in the manner provided. It would not be      open to the revising authority to assume that power." 860      The above  view was  affirmed by this Court in the case of The  Swastik Oil  Mills Ltd.  (supra). In  regard to  the limitations to  which the  revisional power is subject, this Court went on in that case to observe:-      "In fact,  when a  revisional power is to be exercised,      we think that the only limitations, to which that power      is subject,  are those indicated by this Court in K. M.

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    Cheria Abdulla  & Co’s case (1965) 16 S.T.C. 875. These      limitations are  that the revising authority should not      trench upon  the powers which are expressly reserved by      the Acts,  or by  the Rules  to other  authorities  and      should not  ignore  the  limitations  inherent  in  the      exercise of those powers."      In view  of the  above, we  are of opinion that the suo motu power of revision of the Deputy Commissioner is of wide amplitude and  can be  exercised in favour of the Revenue as well as  the taxpayer  in order  to  correct  any  error  or illegality committed by the assessing authority in his order of assessment.      With regard  to the  second question  relating  to  the refusal  by   the  Deputy   Commissioner  to   exercise  his revisional power  in favour of the appellants, we are of the view that  the order  does not suffer from any infirmity. It is true  that money  paid under a mistake of law common both to the assessee and the taxing authority can be got refunded [See the  decision of  this Court  in The State of Kerala v. Aluminium Industries  Ltd.(1)]. But in the instant case, the appellants themselves  submitted a  return  showing  taxable turnover of  Rs. 6,41,031.77.  At no stage of the assessment proceedings before the assessing authority did they bring it to his  notice that  a substantial  portion of  the turnover related to  works contracts  and was  as  such  exempt  from liability to  tax. The  appellants  not  having  raised  the question by  claiming the exemption, the Assessing Authority had no  occasion to  consider it.  It cannot,  therefore, be said  that   the  order  of  assessment  suffered  from  any illegality. It  is  also  significant  that  the  appellants acquiesced  in   the  order  of  assessment  passed  by  the assessing authority and did not prefer any appeal against it nor did  they take  any other step to have it modified. Even in the  objections filed  by them  to the  show cause notice issued by  the Deputy  Commissioner in regard to the levy of penalty,  they   made  a   half-hearted  attempt   to  claim exemption. It  will be relevant in this connection to advert to the prayer made by them which is couched in the following terms:-      "In the  circumstances we  request you  that the Deputy      Commissioner may  either totally  drop the  proposal to      levy 861      penalty  or   in  the   alternative  totally  cure  the      illegality of the assessment and render justice."      The plea  put forth by the appellants that they did not claim exemption  under  the  mistaken  impression  that  the transactions amounted  to  sale  of  goods  cannot  also  be countenanced in view of the fact that as far back as in 1954 it was held by the Madras High Court in Gannon Dunkerley and Co. Ltd.  v. State of Madras(1) that works contracts did not involve any  element of  sale of  materials and  the levy of sales tax  thereon was unlawful. This ruling was affirmed by this Court  in State  of Madras  v. Gannon Dunkerley and Co. Ltd.(2) We  are, therefore,  of the  view  that  the  Deputy Commissioner rightly  refused  to  exercise  his  revisional jurisdiction in  favour of the appellants and the High Court was right  in reversing  the order of the Appellate Tribunal in so  far as  it related  to the  appellants’ claim  to the aforesaid exemption.      For the  foregoing reasons, we do not find any merit in this appeal which is dismissed with costs. P.B.R.                                      Appeal dismissed 862

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