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CASE NO.: Appeal (civil)  2407 of 2007

PETITIONER: M/s. Master Cables Pvt. Ltd

RESPONDENT: State of Kerala

DATE OF JUDGMENT: 09/05/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T  

CIVIL APPEAL NO.       2407           OF 2007 [Arising out of SLP (Civil) No. 111 of 2007]

S.B. SINHA, J :                  1.      Leave granted.

       2.      Legality of a notice issued by the Deputy Commissioner of  Commercial Taxes, Kollam vis-‘-vis the provisions of the Kar Vivad  Samadhan Scheme, 1998 (for short "the Scheme") framed under the Finance  Act, 1998 is in question in this appeal which arises out of a judgment and  order dated 3.08.2006 passed by a Division Bench of the Kerala High Court.

       3.      Appellant is engaged in business of manufacture and sale of  insulated electrical cable.  It is registered under the Kerala General Sales Tax  Act, 1963 (for short "the Act").  Assessment proceedings in respect of the  assessment years 1995-96 and 1996-97 were completed relying upon or on  the basis of the books of accounts maintained by it.  An inspection, however,  was carried out in the premises of the appellant.  Certain amount of  unaccounted production and sale of goods was found.   

       4.      Appellant admittedly took recourse to the provisions of the said  Scheme.  Declaration made by it thereunder was accepted.   

       By an order dated 14.01.2003, the earlier assessment order was set  aside.  Appellant filed an appeal before the Kerala Sales Tax Appellate  Tribunal.  The matter was remitted to the Deputy Commissioner for its re- examination.  By an order dated 20.05.2003, the assessment in respect of the  Assessment Year 1996-97 was set aside.  The said authority directed re- assessment for the year 1995-96 by an order dated 7.11.2003.  Questioning  the said orders, appeals were filed by the appellant before the Tribunal  which by reason of a common judgment dated 21.12.2005 were dismissed.   Two Sales Tax revisions wee filed thereagainst before the High Court,  which by reason of the impugned judgment have been dismissed.   

       5.      Before we embark upon the contentions raised by the appellant,  we may notice that by an order dated 15.01.2007, this Court observed:

"The question which inter alia arises for  consideration in this petition is as to whether by  reason of sub-section (3) of Section 90 of the Kar  Vivadh Samadhan Scheme, 1998, as contained in  the Finance Act, 1998, the State legislation relating  to the imposition of the sales tax by re-opening an  assessment under the State Sales Tax laws shall be  affected or not, having regard to Article 246 of the  Constitution of India.  With a view to pronounce

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an authoritative judgment on the said issue, we are  of the opinion that the Union of India should also  be impleaded as a party."

       Pursuant thereto Union of India was impleaded as a party herein.  It  has filed a counter-affidavit.

       6.      Mr. Huzefa Ahmadi, learned counsel appearing for the  appellant, in support of this appeal, submitted:

(i)     Having regard to the provisions of Sub-section (3) of Section 90 of  the Scheme, the term "any other law for the time being in force"  must be given a wide meaning so as to cover not only the direct tax  or indirect tax envisaged thereunder but also the Sales Tax laws of  the State in the light of the provisions of Clause (3) of Article 286  of the Constitution of India and Sub-clauses (c) and (d) of Clause  (29A) of Article 366 thereof. (ii)    In any event, the purported exercise of suo motu revisional power  by the Deputy Commissioner must be held to be wholly without  jurisdiction.

                7.      The Scheme was enacted with a view to achieve the purposes  mentioned therein, viz., recovery of tax arrears by way of settlement.  It  applies provided the conditions precedent therefor are satisfied.  Sub-section  (3) of Section 90 of the Scheme, whereupon reliance has been placed, reads  as under:

"(3) Every order passed under sub-section (1),  determining the sum payable under this Scheme,  shall be conclusive as to the matters stated therein  and no matter covered by such order shall be  reopened in any other proceeding under the direct  tax enactment or indirect tax enactment or under  any other law for the time being in force."

        8.     "Immunity", however, is provided under Section 91 of the  Scheme, which reads as under:

"91. Immunity from prosecution and imposition of  penalty in certain cases. The designated authority shall, subject to the  conditions provided in section 90, grant immunity  from instituting any proceeding for prosecution for  any offence under any direct tax enactment or  indirect tax enactment, or from the imposition of  penalty under any of such enactments, in respect of  matters covered in the declaration under section  88."

       9.      What is conclusive is the order passed under Sub-section (1) of  Section 90 of the Scheme determining the sum payable under the Scheme.   The terms "direct tax enactment" or "indirect tax enactment" or "any other  law for the time being in force" refer only to those statutes under which the  order had been passed.  Immunity, as noticed hereinbefore, is in respect of  institution of any proceeding for prosecution of any offence under direct tax  enactment or indirect tax enactment or from imposition of penalty under any  of such enactments.  The terms "direct tax enactment" and "indirect tax  enactment" have been defined under Sections 87(h) and 87(j) of the Scheme,  which read as under:

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"(h) "direct tax enactment" means the Wealth-tax  Act, 1957 (27 of 1957) or the Gift-tax Act, 1958  (18 of 1958) or the Income-tax Act, 1961 (43 of  1961) or the Interest-tax Act, 1974 (45 of 1974) or  the Expenditure \026 tax Act, 1987 (35 of 1987);

(j) "indirect tax enactment" means the Customs  Act, 1962 (52 of 1962) or the Central Excise Act,  1944 (1 of 1944) or the Customs Tariff Act, 1975  (51 of 1975) or the Central Excise Tariff Act, 1985  (5 of 1986) or the relevant Act and includes the  rules or regulations made under such enactment;"

                10.     Admittedly, the case of the appellant does not come within the  purview thereof.  Amplitude of the provisions of the Scheme having been  extended only to the enactments made by the Parliament, having regard to  the constitutional Scheme contained in Article 246 of the Constitution of  India, in our opinion, the same cannot be extended to assessment of sales tax  under a State legislature.  The legislative field to enact a law relating to sales  tax is within the exclusive domain of a State Legislature in terms of Entry  54, List II of the Seventh Schedule of the Constitution of India.  The power  and jurisdiction of the assessing authorities as also other authorities is  required to be exercised in terms of the provisions of the said Act.  Power to  tax, it is well-settled, carries with it power to do all things which are  necessary and ancillary therefor including taking preventive measures in  regard to evasion of tax.

       11.     Once it is found that a statutory authority had the jurisdiction to  reopen a proceeding or set aside the order of the assessing authority, only the  higher authorities can interfere therewith.  Only because the appellant had  taken recourse to the Scheme, the same, in our opinion, would not attract  either Sub-section (3) of Section 90 of the Scheme or Section 91 thereof so  as to cover a subject which is within the exclusive domain of the State  Legislature.  In that sense, the said Scheme must be read as limited to those  laws which the Parliament has the legislative competence to enact and not  which falls within the exclusive legislative field of a State, save and except  where expressly so stated or inferred by necessary implication.  A  Legislature is presumed to enact a law only within its domain of field of  legislation.  If the contention that the provisions of the Scheme would also  apply to tax laws created by the State is accepted, it being beyond the  legislative competence, would amount to colourable piece of legislation.

       12.     Reliance placed on Clause (3) of Article 286 of the Constitution  of India, in our opinion, is misplaced.  The said provision reads, thus:

"(3) Any law of a State shall, in so far as it  imposes, or authorises the imposition of,-- (a) a tax on the sale or purchase of goods declared  by Parliament by law to be of special importance  in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a  tax of the nature referred to in sub-clause (b), sub- clause (c) or sub-clause (d) of clause (29A) of  article 366, be subject to such restrictions and  conditions in regard to the system of levy, rates  and other incidents of the tax as Parliament may by  law specify."

       The said provision had to be enacted in view of the decision of this  Court in Bengal Immunity Company Limited v. State of Bihar and Others  [(1955) 2 SCR 603].

       Indisputably in exercise of the said power, the Parliament has the  requisite legislative competence but therefor a specific law is required to be

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enacted.  The Act in question neither is referable to Clause (3) of Article 286  of the Constitution of India nor Sub-clauses (c) and (d) of Clause (29A) of  Article 366 thereof.  It provides only for tax on the sale or purchase of  goods.

       13.     Strong reliance has been placed by Mr. Ahmadi on Sushila Rani  (Smt) v. Commissioner of Income Tax and Another [(2002) 2 SCC 697] and  Hira Lal Hari Lal Bhagwati v. CBI, New Delhi [(2003) 5 SCC 257].

       In Sushila Rani (supra), a question arose as to whether the authority  had a power to correct clerical or arithmetical error.  It was held:

"10. The appellant in the course of the declarations  filed specifically stated that any adjustment of  refunds towards tax arrears of the appellant by the  Department in the earlier years without following  the mandatory procedure of Section 245 of the Act  would still remain as tax arrears for the purpose of  KVSS and it is on that basis the declarations were  accepted by the Department. Having accepted the  claim of the appellant on that basis, it will not be  permissible for the respondents now to turn around  and take a different stand.   11. Even assuming that the authorities under  KVSS have inherent powers to correct an error of  clerical or arithmetical nature, the same should be  so obvious, apparent or patent as not to admit of  any debate or discussion. In this case, the  respondents have to establish adjustment of refund,  which had been made against arrears after due  notice to the appellant and which is denied by her,  and hence admits of investigation of facts and  serious debate on the question. Such an error  cannot be stated to be an inadvertent error of  clerical or arithmetical nature, so plain as to be  rectified without much ado."

       Sushila Rani (supra) has been followed in Hira Lal Hari Lal Bhagwati  (supra) wherein it has been stated:

"18. The present case comes under the tax arrears  payable under the indirect tax enactment. Section  89 of the Kar Vivad Samadhan Scheme, 1998  deals with particulars to be furnished in declaration  and Section 90 of the Scheme deals with the time  and manner of payment of tax arrears. Sub-section  (2) of Section 90 provides that the declarant shall  pay the sum determined by the Designated  Authority within thirty days of the passing of an  order by the Designated Authority and intimate the  fact of such payment to the Designated Authority  along with proof thereof and the Designated  Authority shall thereupon issue the certificate to  the declarant. Sub-section (3) of Section 90 of the  said Scheme provides that every order passed  under sub-section (1), determining the sum  payable under this Scheme shall be conclusive as  to the matters stated therein and no matter covered  by such order shall be reopened in any other  proceeding under the direct tax enactment or  indirect tax enactment or under any other law for  the time being in force . Sub-section (4) of Section  90 of the said Scheme provides that where the

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declarant has filed an appeal or reference or a reply  to the show-cause notice against any order or  notice giving rise to the tax arrear before any  authority or tribunal or court, then,  notwithstanding anything contained in any other  provisions of any law for the time being in force,  such appeal or reference or reply shall be deemed  to have been withdrawn on the day on which the  order referred to in sub-section (2) is passed.    27. On a reading of the judgment in the case of  Sushila Rani 1 , it is clear to us that if an assessee  takes the option under this Scheme, he obtains  immediate immunity under any proceeding under  any and all laws in force. As such the present  proceedings initiated under Section 120-B read  with Section 420 of the Indian Penal Code are bad  and ought to have been quashed with immediate  effect."

       We need not go into the correctness or otherwise of the said decisions.

       14.     We may, however, notice that in State, CBI v. Sashi  Balasubramanian & Anr. [2006 (10) SCALE 541], Hira Lal Hari Lal  Bhagwati (supra) was distinguished by this Court inter alia opining that the  prosecution was launched after a declaration was made.   

       In Sashi Balasubramanian (supra), this Court held:

       "In any view of the matter, an immunity is  granted only in respect of offences purported to  have been committed under direct tax enactment or  indirect tax enactment, but by no stretch of  imagination, the same would  be granted in respect  of  offences  under the Prevention of Corruption  Act.  A person may commit several offences under  different Acts;  immunity granted in relation to one  Act would not mean that immunity granted would  automatically extend to others.  By way of  example , we may notice that a person may be  prosecuted for commission of an offence in  relation to  property under the Indian Penal Code  as also under another Act, say for example, the  Prevention of Corruption Act.   Whereas charges  under the Prevention of Corruption Act may fail,  no sanction having been accorded therefor, the  charges under the Penal Code  would not."

       15.     The question came up for consideration yet again before this  Court in Alpesh Navinchandra Shah v. State of Maharashtra and Others  [(2007) 2 SCC 777] wherein Hira Lal Hari Lal Bhagwati (supra) was  distinguished by this Court stating:

"At the time of hearing, learned Counsel for the  petitioner relied upon the case of Hiralal Harilal  Bhagwati v. C.B.I (supra). According to learned  Counsel for the respondent the said relied upon  case was a case of duty evasion and appellant  therein was booked by customs authority and  therefore, customs duty was paid under KVSS and  further in the criminal proceedings under Section  120B and 420 IPC initiated by CBI was quashed  by this Court. Therefore, it is admitted that the  above cited case is different from the present case  as in the case in hand the detention order was

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issued under the COFEPOSA Act against the  petitioner with objective to prevent to the nefarious  activities in future. Therefore, the immunity  granted by the Settlement Commission from fine,  penalty and prosecution under the provisions of the  Customs Act and IPC have no bearing on the order  of detention passed under the COFEPOSA Act.  Therefore, it is contended that the detention order  issued by the Detaining Authority is very much  legal and the same needs to be upheld. The Settlement Commission was constituted with  the aim and objective of settling the tax evasion  issues and by virtue of disclosure by tax offender;  they gain immunity from fine/penalty which is  otherwise mandatory under the provisions of tax  laws. But, such opportunity is only extended to one  tax offender but not available to habitual  smugglers. For the persons involved in smuggling  activities, other than the provisions made for the  prosecution under the Customs Act, 1962, an equal  deterrent is emphasized under the provisions of the  COFEPOSA Act, 1974 i.e. provisions for  preventive detention. Such preventive detention  prohibits smugglers from indulging in further  smuggling activities. In the present case the  investigation reveals the consistent involvement of  the petitioner -detenue and his brother Kamlesh  Navinchandra Shah in smuggling activities,  therefore, the Detaining Authority on the basis of  evidence placed before him felt it necessary to  issue the detention orders in respect of both the  detenues in order to prevent them from pre-judicial  activities in future. Accordingly the impugned  order is justifiable in the eyes of law and present  Writ Petition deserves to be dismissed."

       For the reasons aforementioned, the said decisions cannot be said to  have any application so far as the first contention of Mr. Ahmadi is  concerned.

       16.     The second contention of Mr. Ahmadi, in our opinion, is also  without merit.  Appellant can raise all contentions before the authorities.   The purported finding was arrived at for the purpose of resorting to the  provisions of Section 35 of the Act which reads as under:

"35. Powers of revision of the Deputy  Commissioner suo motu \026 (1) The Deputy  Commissioner may, of his own motion, call for  and examine any order passed or proceedings  recorded under this Act by any officer or authority  subordinate to him other than an Appellate  Assistant Commissioner which in its opinion is  prejudicial to revenue and may make such enquiry  or cause such enquiry 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 four years have expired after the

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passing of the order referred to therein. 2A. Notwithstanding anything contained in sub- section (2), the Deputy Commissioner may pass an  order under sub-section (1) on any point which has  not been decided in an appeal or revision referred  to in clause (b) of sub-section (2), 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 the period of four years referred to in  clause (c) of that sub-section whichever is later. (3) No order under this Section adversely affecting  a person shall be passed unless that person has had  a reasonable opportunity of being heard."

       17.     We do not see any reason as to why the observations contained  therein shall not be treated to be prima facie ones and, thus, all contentions  of the parties shall remain open.

       18.     We have no doubt, in our mind, that the appropriate authority  would consider the matter with an open mind irrespective of any  observations made for the purpose of invocation of power under Section 35  of the Act.  The Tribunal has also noticed that the entire matter has been left  open to the assessing authority.  It would, thus, not only be open to the  appellant to raise all contentions, they would also be at liberty to produce all  relevant materials before the assessing authority to show that the orders of  assessment passed earlier were legal and no deviation therefrom is  warranted.

       19.     This appeal, thus, being devoid of any merit, is dismissed with  the aforementioned observations.  In the facts and circumstances of this case,  however, there shall be no order as to costs.