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PETITIONER: KUNDAN LAL SRIKISHAN MATHURA (U.P.).

       Vs.

RESPONDENT: COMMISSIONER OF SALES TAX, U.P. AND ANOTHER.

DATE OF JUDGMENT03/02/1987

BENCH: VENKATARAMIAH, E.S. (J) BENCH: VENKATARAMIAH, E.S. (J) DUTT, M.M. (J)

CITATION:  1987 AIR  793            1987 SCR  (2) 140  1987 SCC  (1) 684        JT 1987 (1)   321  1987 SCALE  (1)234

ACT:      Uttar Pradesh Sales Tax Act, 1948--Ss. 21 and 22--Order passed under s.21--Assessee held not liable to pay any  more tax--Application  for rectification of the original  assess- ment order moved--Period of limitation-- Whether to commence from  the date of the original assessment order or from  the date of order passed under s.21.

HEADNOTE:     An  assessment order was passed in respect of the  turn- over of the appellant-firm for the year 1975-76 by the Sales Tax  Officer on 7.2.1979. Thereafter, the Sales Tax  Officer issued  a notice under s.21 of the Uttar Pradesh  Sales  Tax Act,  1948, proposing to make a reassessment on  the  ground that  the  mandi  cess and arhat  (commission)  had  escaped assessment  and directed the appellant to appear along  with its  account  books  on 18.1. 1980. The  Sales  Tax  Officer passed  the order under s.21 on the same date  holding  that the appellant was not liable to pay any more tax.     In  the year 1982 the appellant filed four  applications under s.22 for rectification of the mistakes in the  assess- ment  orders for assessment years 1975-76, 1976-77,  1977-78 and  1978-79 on the ground that the turnover in  respect  of purchases  made  on behalf of Ex-U.P.  principals  had  been wrongly  assessed  to sales tax. All the  four  applications were rejected by the Sales Tax Officer on merits.     The  appellant preferred appeals and the  Appellate  Au- thority  allowed  the  appeals relating  to  the  assessment orders for the assessment years 1976-77, 1977-78 and 1978-79 on merits but dismissed the appeal in respect of the assess- ment  order  for the assessment year 1975-76 on  the  ground that the application for rectification had been filed beyond three  years from the date of the original order of  assess- ment and was thus barred by limitation.     The  appellant filed second appeal before the Sales  Tax Tribunal  in  respect of the assessment  year  1975-76.  The Department  also preferred second appeals in respect of  the orders  of assessment for assessment years 1976-77,  1977-78 and 1978-79. The Tribunal allowed the appeal 141 of the appellant holding that the rectification  application

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made  in respect of the assessment order for the  assessment year  1975-76  was within limitation as the  original  order dated 7.2.1979 had ceased to exist on the re-opening of  the assessment and the final order had been passed on 18.1. 1980 within  three  years from the date of  the  application  for rectification  which had been filed on  4.11.1982.  However, the appeals of the Department were dismissed.     Out  of  the  four revision applications  filed  by  the Department, the High Court dismissed three applications  and allowed the revision application in respect of the  applica- tion  for  rectification  of the assessment  order  for  the assessment  year  1975-76 holding that the  application  for rectification  had  been filed beyond three years  from  the date  of  the original order dated 7.2. 1979  and  that  the order  dated  18. 1. 1980 had no effect on the  question  of limitation.     In the appeal to this Court, on behalf of the  appellant it was contended that on the issue of the notice under  s.21 of  the Act original assessment order ceased to be in  force and that the only order of assessment in respect of  assess- ment  year 1975-76 which should be taken into  consideration for all purposes including the application for rectification of mistake is the order dated 18.1. 1980.     On  behalf of the State it was contended that  since  no order  of reassessment had actually been passed in  the  in- stant  case on 18.1. 1980 but only an order discharging  the notice  issued  under s.21 of the Act had  been  passed  the original  order of assessment passed on 7.2. 1979  continued to remain in force. Allowing the appeal,     HELD: 1. The judgment of the High Court is set aside and the decision of the Tribunal restored. [150G]     2. Section 21 of the Uttar Pradesh Sales Tax Act,  1948, authorises  the  assessing  authority to make  an  order  of assessment  or reassessment. It says that if  the  assessing authority  has reason to believe that the whole or any  part of the turnover of a dealer, for any assessment year or part thereof,  has escaped assessment to tax or has  been  under- assessed  or has been assessed to tax at a rate  lower  than that at which it is assessable under the Act, or any  deduc- tions  or  exemptions have been wrongly allowed  in  respect thereof, the assessing  authority may, after issuing  notice to  the  dealer and making such inquiry as it  may  consider neces- 142 sary assess or reassess the dealer or tax according to  law. [149G-H;150A-B]     3. Section 21 of the Act does not require the  assessing authority to pass an order deciding whether it is  necessary to proceed with the inquiry under that section or not before passing  an order of assessment or reassessment  under  that section.  The  only order which the assessing  authority  is required to make under s.21 after a notice is issued to  the dealer  under  that  section is an order  of  assessment  or reassessment. [150C-D]     4.  Once  a  notice is issued for  ,purposes  of  making reassessment  the earlier proceedings become  re-opened  and the initial order of assessment ceases to be operative.  The effect  of the re-opening of the assessment is to vacate  or set aside the initial order of assessment and to  substitute in  its  place the order mode on reassessment and  that  the result of the re-opening of  the assessment is that a  fresh order  for reassessment would have to he made in respect  of all  matters  including those matters in  respect  of  which there is no allegation of the turnover escaping  assessment.

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[148H;149A-B]     5.  Once an assessment order hod been rectified  and  it was sought to make a further rectification of that order the period  of limitation for making such further  rectification would commence not from the date of the original  assessment order but from the date of the earlier rectification  order. [148G-H]     Deputy  Commissioner  of  Commercial  Taxes  v.H.R.  Sri Ramulu, [1977] 2 S.C.R. 593; Shinde Brothers etc. v.  Deputy Commissioner, Raichur, A.I.R. 1967 S.C. 15 12;  Commissioner of Income-tax, Excess Profits Tax, Hyderabad, Andhra Pradesh v.V. Jagan Mohan Rao & Others, [1970] 1 S.C.R. 726;  Commis- sioner  of Sales Tax, Madhya Pradesh v. M/s.  H.M.  Esufali, H.M.  Abdulali, Siyaganj, Indore, [1973] 3 S.C.R.  1005  and International Cotton Corporation (P) Ltd. v. Commercial  Tax Officer, HubIi & Ors., [1975] 2 S.C.R. 345, followed.     6.  The order dated 18.1. 1980 is an order of  reassess- ment notwithstanding the fact that a regular order of  reas- sessment has not been passed. The order passed on 18.1. 1980 should  be construed as a fresh order of  assessment  passed under  s.21 of the Act and the initial order  of  assessment dated 7.2.1979 should be deemed to be the order passed again on 18.1.1980. [149E-F]     7. If the assessee is able to show any error apparent on the record from the order of assessment dated 7.2. 1979  the appellant is entitled to 143 succeed in its application for rectification provided it  is made within the prescribed time, i.e., three years from  the date of the order passed under s.21 of the Act. [149E-F]     Deputy  Commissioner  of Commercial Taxes  v.  H.R.  Sri Ramulu, [1977] 2 S.C.R. 593, referred to.     8.  It should be held that the assessing  authority  had adopted  the  earlier order dated 7.2.1979 as the  order  of assessment passed at the conclusion of the proceedings under s.21  of the Act. The period of limitation for the  applica- tion for rectification should, therefore, be calculated from the date of the order under s.21 of the Act, i.e. 18.1.1980. [150F]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 625 of 1986.     From  the  Judgment and Order dated  20.11.1985  of  the Allahabad High Court in Sales Tax Revision No. 3 18 of 1985.     Shanti Bhushan, Prashant Bhushan and Madan Lokur for the Appellant.     Gopal Subramanium. R.S. Rana and Ashok K. Srivastava for the Respondents. The Judgment of the Court was delivered by     VENKATARAMIAH,  J. The short question which  arises  for consideration in this appeal relates to the period of  limi- tation  within which an application for rectification of  an order  of reassessment passed under section 21 of the  Uttar Pradesh  Sales  Tax Act, 1948 (Uttar Pradesh Act No.  XV  of 1948)  (hereinafter  referred to as ’the Act’) can  be  pre- ferred under section 22 of the Act.     The  brief facts which are necessary for  deciding  this case  are these. The appellant-firm is a dealer carrying  on business in Mathura in the State of Uttar Pradesh. An  order of  assessment was passed in respect of the turnover of  the appellant  for  the year 1975-76 by the Sales  Tax  Officer, Sector  2, Mathura under the Act on 7.2.1979. Thereafter  on

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January 8, 1980 the Sales Tax Officer issued a notice to the appellant  under section 21 of the Act proposing to  make  a reassessment  in respect of the said assessment year,  i.e., 1975-76 on the 144 ground  that  the mandi cases and arhat  (commission)  which should  have been included in the turnover had  escaped  as- sessment  and  directed the appellant to appear  before  him along  with its account books on 18.1. 1980.  After  looking into  the  books of accounts and hearing  the  advocate  who appeared  on behalf of the appellant, the Sales Tax  Officer passed  the  order under section 21 of the Act on  the  same date  holding that the appellant was not liable to  pay  any more  tax under the Act. The order passed by the  Sales  Tax Officer reads thus:               "Office  of  the Sales Tax Officer  Sector  2,               Mathura               S/Shri Kundan Lal Srikishan Lala Gan j, Mathu-               ra               Year: 75-76 Section 21               ORDER UNDER SECTION 21                         The original tax assessment order in               respect  of  you  was passed  on  7.2.79.  The               audit,  however, had objected that  the  busi-               nessman’s  arhat (commission) and  mandi  cess               amount  was  left out from taxation.  On  this               basis  the businessman was called  by  issuing               him  notice  under the said  section.  On  the               appointed  day,  his  advocate  appeared   and               submitted  the accounts books. On  examination               it was found that the businessman had  already               included  the arhat and mandi cess  amount  in               the  taxable  income and he had  already  been               assessed.  Therefore, no tax is to  be  levied               now  and the businessman is declared  as  free               from paying any more tax under section 21.                                                   Sd/B. Lal                                              Sales       Tax               Officer Sector 2, Mathura               Dated: 18.1.80"     In the year 1982, the appellant realised that it was not liable  to pay sales tax on purchases made on behalf of  Ex- U.P. principals as such purchases had occasioned inter-State movement  of  the commodities in question and were  as  such exempt  from the purview of the Act. The  appellant,  there- fore, filed four applications under section 22 of 145 the Act for rectification of the mistakes in the  assessment orders  for assessment years 1975-76, 1976-77,  1977-78  and 1978-79  on the ground that the turnover in respect of  pur- chases made on behalf of Ex-U.P. principles had been wrongly assessed to sales tax in the aforementioned four years.  The applications for rectification made in respect of assessment years  1976-77,  1977-78 and 1978-79 were all  within  three years  of the assessment orders but the application made  in respect of the assessment order in respect of the assessment year  1975-76  was beyond three years from the date  of  the original  order  of assessment which had been made  on  7.2. 1979  but  within  three years from the date  of  the  order passed by the Sales Tax Officer under section 21 of the Act. All the four applications made by the appellant were reject- ed  by the Sales Tax Officer on merits on 3.1. 1983.  There- upon  the  appellant preferred appeals  against  the  orders rejecting  the applications before the Appellate  Authority. The  said Appellate Authority by its order dated 21.1.  1983

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allowed  the appeals relating to the assessment  orders  for the assessment years 1976-77, 1977-78 and 1978-79 on  merits but  dismissed  the  appellant’s appeal in  respect  of  the assessment  order  for the assessment year  1975-76  on  the ground  that the appellant’s application  for  rectification filed  under  section 22 of the Act had  been  filed  beyond three  years from the date of the original order of  assess- ment  and  was thus barred by limitation. Aggrieved  by  the order of the Appellate Authority dismissing the  appellant’s appeal  arising out of the application for rectification  of the  assessment  order passed in respect of  the  assessment year 1975-76, the appellant preferred a second appeal before the  Sales Tax Tribunal, Uttar Pradesh. The Department  also preferred second appeals against the orders of rectification passed  by the Appellate Authority in respect of the  orders of  assessment  for assessment years’ 1976-77,  1977-78  and 1978-79.  The  Tribunal  disposed of all the  appeals  by  a common order dated 26.2. 1985 by which it allowed the appeal of  the  appellant and dismissed the appeals  filed  by  the Department.  The Tribunal held that the appellant was  enti- tled to succeed on merits in each of the appeals and further held  that the rectification application made in respect  of the  assessment  order for the assessment year  1975-76  was within  limitation  as the original order  dated  7.2.  1979 passed in respect of the said assessment year had ceased  to exist  on  the re-opening of the assessment  by  the  notice issued under section 21 of the Act and the final order under that  section  had been passed on 18.1.  1980  within  three years  from  the date of the application  for  rectification which had been filed on 4.11. 1982. Aggrieved by the  orders of the Tribunal the Department filed four revision  applica- tions before the High Court of Allahabad. The High Court  by its order dated 15.11. 1985 dismissed three of the 146 Department’s revision applications pertaining to the  appel- lant’s rectification applications in respect of the  assess- ment  orders for the assessment years 1976-77,  1977-78  and 1978-79  on merits holding that the orders of  the  Tribunal were  correct and no ground had been made out  to  interfere with  them.  It, however, allowed the  revision  application filed  by the Department in respect of the  application  for rectification  of  the assessment order for  the  assessment year 1975-76 on the ground that the application for rectifi- cation  had been filed beyond three years from the  date  of the original order dated 7.2. 1979 and that the order  dated 18.1.1980  passed under section 21 of the Act had no  effect on  the question of limitation. Aggrieved by the said  order of  the  High Court the appellant has filed this  appeal  by special leave.     The  material  part of section 21 of the Act,  which  is relevant for the purposes of this case, reads thus:               "21.  Assessment  of tax on the  turnover  not               assessed during the year--(1) If the assessing               authority has reason to believe that the whole               or  any part of the turnover of a dealer,  for               any  assessment  year  or  part  thereof,  has               escaped  assessment to tax or has been  under-               assessed or has been assessed to tax at a rate               lower  than  that at which  it  is  assessable               under  this Act, or any deductions  or  exemp-               tions  have  been wrongly allowed  in  respect               thereof,  the assessing authority  may,  after               issuing  notice to the dealer and making  such               inquiry as it may consider necessary assess or               re-assess  the  dealer  or  tax  according  to

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             law  .......  "     Section  22  of  the Act provides  that  the  assessing, appellate or revising authority or the Tribunal may, on  its own motion or on the application of the dealer or any  other interested person rectify any mistake in its order, apparent on the record within three years from the date of the  order sought  to be rectified. The question for  consideration  is whether for purposes of limitation the date of the order  of assessment  for the year 1975-76 in the instant case  should be  the  date of the original assessment order,  i.e.,  7.2. 1979  of whether it should be the date of the  order  passed under section 21 of the Act, i.e., 18.1. 1980.     On  behalf  of the appellant it is contended  before  us that on the issue of the notice under section 21 of the  Act the  original assessment ceased to be in force and that  the only  order  of  assessment in respect  of  assessment  year 1975-76 which should be taken into consideration for 147 all purposes including the application for rectification  of mistake  is  the order dated 18.1.1980. In  support  of  the above  plea  the appellant has relied upon the  decision  of this Court in Deputy Commissioner of Commercial Taxes v.H.R. Sri  Ramulu,  [1977] 2 S.C.R. 593 which was a  case  arising under  the  Mysore (Karnataka) Sale Tax Act, 1957.  In  that case the original assessment order had been passed on  March 21, 1963. Thereafter there was an order of reassessment made under  section 12A of the Mysore (Karnataka) Sales Tax  Act, 1957  on  June 8, 1966 because certain amounts  had  escaped assessment  under the original assessment order.  Thereafter on June 28, 1967 the Deputy Commissioner of Commercial Taxes passed  an order revising the order dated June 8, 1966 as  a consequence of the decision of this Court in Shinde Brothers etc.  v. Deputy Commissioner, Raichur, A.I.R. 1967  S.C.  15 12. Thereafter the assessee filed an application for  recti- fication  of the order passed by the Deputy Commissioner  of Commercial  Taxes  requesting  him to set  aside  the  order passed  on  revision  under section 21 of that  Act  on  the ground that the revision of assessment was barred by limita- tion under section 21(3) of that Act and as such there was a mistake  apparent on the record. The Deputy Commissioner  of Commercial Taxes rejected the said application. The assessee questioned  the order of the Deputy Commissioner of  Commer- cial Taxes before the Mysore (Karnataka) Sales Tax Appellate Tribunal. The Tribunal too rejected that appeal. The  asses- see thereafter filed a petition before the High Court  under Article  226  of the Constitution of India. The  High  Court allowed  the  appeal  and quashed the order  passed  by  the Deputy Commissioner of Commercial Taxes on June 28, 1967  on the  ground  that  the said order had  been  passed  without jurisdiction  as  the power of revision had  been  exercised beyond the prescribed period of four years from the date  of the  original  assessment order dated March  21,  1963.  The Deputy  Commissioner  of Commercial Taxes  filed  an  appeal against  the  order  of the High Court  before  this  Court. Allowing  the said appeal this Court observed thus  at  page 596:               "The short question which arises for  determi-               nation  in these appeals is that in the  event               of an order having been made under section 12A               of  the  Act, what is the starting  point  for               computing the period of four years,  mentioned               in  section  21(3), for the  exercise  of  the               powers under section 21(2). Is it the  initial               assessment-order or is it the order made under               section  12A?  In the context of  the  present

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             case,  the  question to be answered is  as  to               whether  the  period of four  years,is  to  be               calculated from March 21,1963-when the initial               assessment  oders were made, or from  June  8,               1966 when               148               the  orders under section 12A of the Act  were               made. So far as this question is concerned, we               are  of  the opinion that the period  of  four               years  should be calculated from June 8,  1966               i.e.,  the date on which orders under  section               12A of the Act were made. The reason for  that               is  that once an assessment is  reopened,  the               initial  order  for assessment  ceases  to  be               operative. The effect of reopening the assess-               ment  is  to vacate or set aside  the  initial               order for assessment and to substitute in  its               place  the  order made  on  reassessment.  The               initial order for reassessment cannot be  said               to  survive,  even  partially,  although   the               justification for reassessment arises  because               of  turnover escaping assessment in a  limited               field  or only with respect to a part  of  the               matter  covered  by  the  initial   assessment               order. The result of reopening the  assessment               is  that a fresh order for reassessment  would               have to be made including for those matters in               respect of which there is no allegation of the               turnover escaping assessment. As it is we find               that in the present case the assessment orders               made  under  section  12A  were  comprehensive               orders and were not confined merely to matters               which  had escaped assessment earlier. In  the               circumstances, the only orders which could  be               the  subject matter of revision by the  appel-               lant were the orders made under section 12A of               the   Act  and  not  the  initial   assessment               orders."     In  reaching the above conclusion the Court relied  upon three  decisions  of  this Court,  namely,  Commissioner  of Income-tax,  Excess Profits Tax, Hyderabad,  Andhra  Pradesh v.V. Jagan Mohan Rao & Others, [1970] 1 S.C.R. 726;  Commis- sioner  of Sales Tax, Madhya Pradesh v. M/s.  H.M.  Esufali, H.M.  Abdulali, Siyaganj, Indore, [1973] 3 S.C.R.  1005  and International Cotton Corporation (P) Ltd. v. Commercial  Tax Officer, HubIi & Ors., [1975] 2 S.C.R. 345. The third of the above three cases, namely, International Cotton  Corporation (P)  Ltd. v. Commercial Tax Officer, Hubli &  Ors.,  (supra) was a case arising out of rectification proceedings. In that case this Court held that once an assessment order had  been rectified and it was sought to make a further  rectification of  that  order  the period of limitation  for  making  such further  rectification would commence not from the  date  of the  original  assessment  order but from the  date  of  the earlier  rectification  order.  In  Deputy  Commissioner  of Commercial  Taxes v. H.R. Sri Ramulu (supra) this Court  has clearly  laid  down that when once a notice  is  issued  for purposes  of making reassessment the assessment  proceedings become re-opened and the initial order of assessment 149 ceases to be operative. The Court has further held that  the effect  of the re-opening of the assessment is to vacate  or set aside the initial order of assessment and to  substitute in  its  place the order made on reassessment and  that  the result of re-opening of the assessment is that a fresh order

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for  reassessment  would have to be made in respect  of  all matters including those matters in respect of which there is no allegation of the turnover escaping assessment. The  same principle  should apply even tO a Case like the present  one where  an’application for rectification is filed  after  the completion of the reassessment proceedings.     In order to overcome the observation made by this  Court in Deputy Commissioner of Commercial Taxes v.H.R. Sri Ramulu (supra) it was argued on behalf of the State Government that since no order of re-assessment had actually been passed  in the instant case on 18.1. 1980 but only an order discharging the  notice  issued  under section 21 of the  Act  had  been passed  the original order of assessment passed on  7.2.1979 continue  to  remain in force. It is true that  after  going through the books of accounts produced by the appellant  and hearing  the advocate who appeared on its behalf  the  Sales Tax  Officer was of the view that the assessee  had  already included in its taxable turnover the arhat (commission)  and mandi cess amounts and therefore, no extra tax was  leviable under section 21 Of the Act. Even so it has to be held  that the  order dated 18.1.1980 is an order of reassessment  not- withstanding  the fact that a regular order of  reassessment has  not been passed. The order passed on 18.1, 1980  should be  construed  as a fresh order of assessment  passed  under section  21 of the Act and the initial order  of  assessment dated 7.2.1979 should be deemed to be the order passed again on  18.1.1980.  If the assessee is able to  show  any  error apparent  on the record from the order of  assessment  dated 7.2.1979 which as we have observed earlier should be  deemed to  have  been passed again on 18.1.1980, the  appellant  is entitled  to  succeed in its application  for  rectification provided it is made within the prescribed time, i.e.,  three years from the date of the order passed under section 21  of the Act.     We  do  not  find any merit in the  submission  made  on behalf of the Department that the order passed on  18.1.1980 should  be  understood as an order  discharging  the  notice issued  under  section  21 of the Act and not  an  order  of reassessment  as such. This is obvious from the language  of section  21,  itself. Section 21  authorises  the  assessing authority  to. make an order of assessment or  reassessment. It  says that if the assessing authority has reason  to  be- lieve that the whole or any part of the turnover of a  deal- er, for any assessment year or part 150 thereof,  has escaped assessment to tax or has  been  under- assessed  or has been assessed to tax at a rate  lower  than that at which it is assessable under the Act, or any  deduc- tions  or  exemptions have been wrongly allowed  in  respect thereof,  the assessing authority may, after issuing  notice to  the  dealer and making such inquiry as it  may  consider necessary assess or re-assess the dealer or tax according to law.  The assessing authority gets jurisdiction to make  the reassessment  by issuing a notice to the dealer as  provided by  section  21 of the Act. When once the notice  is  issued under  that  section the original order of  assessment  gets re-opened and thereafter any order made under section 21  of the Act alone would be the order of assessment in respect of the  period  in  question. Section 21 of the  Act  does  not require  the assessing authority to pass an  order  deciding whether  it is necessary to proceed with the  inquiry  under that section or not before passing an order of assessment or reassessment  under that section. The only order  which  the assessing  authority  is required to make under  section  21 after a notice is issued to the dealer under that section is

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an  order of assessment or reassessment. It is not  required to  pass first an order whether it should proceed  with  the reassessment proceedings or not. Such a preliminary order is not  contemplated  under section 21 of the  Act.  Hence  the order  dated  18.1.1980  has to be treated as  an  order  of assessment  even  though it is not in the form in  which  an order  of  assessment has to be passed and not as  an  order merely  on the question whether the reasessment  proceedings under section 21 of the Act should be proceeded with or not. In other words it should be held that the assessing authori- ty had adopted the earlier order as the order of  assessment passed at the conclusion of the proceedings under section 21 of the Act. The period of limitation for the application for rectification should, therefore, be calculated from the date of the order under section 21 of the Act. We cannot,  there- fore,  subscribe to the view of the High Court expressed  in its observation that since no fresh order of assessment  had been passed after examining the accounts of the assessee the ’original  assessment order should be considered  to  remain intact  a  nothing is added or altered in pursuance  of  the order under section 21 of the Act’.     No other contention is urged before us. In the result we set  aside  the judgment of the High Court and  restore  the decision of the Tribunal. The appeal is accordingly allowed. There shall, however, be no order as to Costs. A.P-J.                                                Appeal allowed. 151