1. The proper interpretation of Section 41 of the Andhra Pradesh General Sales Tax Act, 1957 (VI of 1957) is involved in this enquiry.

2. This writ petition relates to the assessment year 1956-57. The petitioner, who is a dealer in tobacco, was assessed to tax by the proper Commercial Tax Officer by an order dated 27th March, 1959, and a sum of Rs. 9,962-2-5 was demanded as the tax due and payable by him. It is to quash this order of assessment that the writ petition was filed under Article 226 of the Constitution contending that it was beyond the competence of the department to make an assessment in respect of purchases made during the period of the operation of the Madras General Sales Tax Act after it had ceased to be in force.

3. Before we deal with the controversy relating to the construction of Section 41, we have to read that section. It postulates :

(1) The Madras General Sales Tax Act, 1939 (Madras Act IX of 1939), the Hyderabad General Sales Tax Act, 1950 (Hyderabad Act XIV of 1950), the Madras Tobacco (Taxation of Sales and Registration) Act, 1953 (Madras Act IV of 1953), the Andhra General Purchase Tax Act, 1956 (Andhra Act XIII of 1956) and Section 21-A of the Madras Prohibition Act, 1937 (Madras Act X of 1937) are hereby repealed:

Provided that such repeal shall not affect the previous operation of the said Acts or section or any right, title, obligation or liability already acquired, accrued or incurred thereunder, and subject thereto, anything done or any action taken (including any appointment, notification, notice, order, rule, form, regulation, certificate, licence or permit) in the exercise of any power conferred by or under the said Acts or section shall be deemed to have been done or taken in the exercise of the powers conferred by or under this Act, as if this Act were in force on the date on which such thing was done or action was taken and all arrears of tax and other amounts due at the commencement of this Act may be recovered as if they had accrued under this Act.

We need not quote Sub-section (2), as it is not material for our present purpose. We are here mainly concerned with the import of the expression "obligation or liability already acquired, accrued or incurred thereunder ".

4. The argument pressed upon us by Sri P. A. Choudary, learned counsel for the petitioner, is that the relevant clause has reference only to the tax ascertained and levied and does not take in chargeability to tax.

5. As substantiating this interpretation of the proviso, the learned counsel has cited to us the decision of the Orissa High Court in Chakoo Bhai v. State of Orissa and Ors. [1956] 7 S.T.C. 36, and of the Supreme Court in Chaituram Horilram Ltd. v. Commissioner of Income-tax, Bihar and Orissa [1955] 27 I.T.R. 709. In construing Clause 20 of the Adaptation of Laws Order, 1950, issued by the President of India and its bearing on the liability of a dealer to taxation, the learned Judges of the Orissa High Court stated that the expression contained in the Adaptation of Laws Order which is similar to the one we are now required to interpret, namely, "obligation or liability already acquired, accrued or incurred thereunder" indicated that what was saved was an assessment already made and that if the tax was not determined and had not become payable, the liability could not be said to have been incurred. Said Panigrahi, C.J., who spoke for the Court, in the course of his judgment:

It was contended by the learned Advocate-General that the liability is incurred under Section 4 of the Orissa Sales Tax Act the moment the turnover of a dealer exceeds the figure mentioned in the Act. This argument proceeds on a wrong assumption that charge-ability to tax is the same thing as liability to pay. 'Liability' means no more than 'to be under an obligation' and does not necessarily connote an existing liability. Thus a person is liable to maintain his wife and children, but no liability to pay is actually incurred until the amount of maintenance is ascertained. The unsuccessful party in a suit is liable to pay the costs of his opponent, but the liability is not incurred until the costs are actually assessed. The Sales Tax Act itself makes a distinction between 'liability to be assessed' and 'liability to pay'. Section 4 is declaratory and says : 'Every dealer shall be liable to pay tax under the Act on sales effected after the date so notified.' The language of the section clearly implies that the liability is prospective and contingent and comes into existence only after the date notified under the Act and when the gross turnover exceeds a stated figure.

6. Down below, the learned Judge added :

It is clear, therefore, that the expression 'liability' occurring in Section 4 refers to a contingent liability which may continue or cease upon the happening of a certain event and this liability is expressly stated to be subject to the provisions of Sections 5, 6, 7 and 8.

7. Again, it was observed :

These provisions indicate that the liability to pay does not arise until an assessment has been made according to the directions laid down in the Act.

8. With great respect we are unable to subscribe to the theory propounded by the learned Judges in this case. The liability to pay tax springs from the charging section, which imposes the obligation to pay the tax. It is not dependent upon the assessment. Section 5 of the Andhra Pradesh General Sales Tax Act, 1957 (omitting the unnecessary portions) recites :

(1) Every dealer (other than a casual trader and an agent of a non-resident dealer) whose total turnover for a year is not less than Rs. 10,000 and every casual trader or agent of a nonresident dealer, whatever be his turnover for the year, shall pay a tax for each year, at the rate of two naye paise on every rupee of his turnover :

9. It is thus manifest that it is the statute by Section 5 that declares the liability. After fixing the liability in regard to a turnover exceeding the figure indicated therein, the enactment devises a machinery for quantifying the liability and for collecting the tax. All that is needed to attract the taxability is that there should be transactions which could be brought to tax under the Sales Tax Act. If the purchases or sales are exigible to tax, the liability to pay tax arises or is incurred. The purpose of the assessment is only to quantify that liability. With great respect to the learned Judges of the Orissa High Court who decided Chakoo Bhai Ghelabhai v. State of Orissa and Ors. [1956] 7 S.T.C. 36, we cannot agree that the liability to pay does not arise till the assessment has been made. As we have already stated, the obligation to pay tax is imposed by the statute itself but the enforcement of the obligation could be made only after the assessment. We also find it difficult to assent to the proposition that chargeability to tax does not imply the liability to pay the tax or that the obligation created by Section 5 is a contingent one and does not arise until it is ascertained and levied on the subject. In our considered opinion, the moment a dealer makes either purchases or sales which are subject to tax, the obligation to pay the tax has arisen and taxability is attracted. All that could be posited is that till the quantification is effected by assessment proceedings, that liability could not be enforced. So, the liability for payment of tax is independent of the assessment. The expression "liability already incurred thereunder", in our opinion, denotes the taxability, i.e., the chargeability to tax, and not the quantification of the tax or the payment thereof. It is true that the declaration of liability by the statute and the quantification thereof are two different stages in the imposition of tax. But, there can be little doubt that the declaration of liability implies the liability to pay.

10. As pointed out by Lord Dunedin in his speech in Whitney v. Inland Revenue Commissioners [1926] A.C. 37:

Now, there are three stages in the imposition of a tax : there is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesi, has already been fixed. But assessment particularises the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay.

11. The passage quoted above makes it abundantly clear that the obligation to pay the tax is not dependent on the assessment. The dictum contained in this passage negatives the contention urged by the learned counsel for the petitioner and also furnishes an effective answer to the question posed in Chakoo Bhai Ghelabhai v. State of Orissa and Ors. [1956] 7 S.T.C. 36. For the reasons stated above, we respectfully dissent from the doctrine embodied in the ruling and which lends colour to the argument advanced on behalf of the assessee.

12. We are supported in this interpretation of the expression by the judgment of this Court in Budhan Khan v. State of Andhra Pradesh [1961] 12 S.T.C. 829 and Damma Pedda Yellappa v. State of Andhra Pradesh [1960] 11 S.T.C. 691. In the first of the above-mentioned two cases, our learned brother Seshachalapati, J., ruled that the expression " liability already incurred " occurring in a similar statute included the liability to pay and was not confined to the quantified liability. The learned Judge said :

The expression ' liability already incurred ', in my judgment, certainly refers to the liability to pay the tax under the Regulation which has been declared in Section 3 thereof.

13. He dissented from the opinion expressed by the Orissa High Court in Chakoo Bhai Ghelabhai v. State of Orissa and Ors. [1956] 7 S.T.C. 36.

14. In the second of the cases, a Division Bench of this Court to which one of us was a party (the Honourable Chief Justice) had take a similar view. The principle enunciated in the Orissa case was not accepted in both these cases. In the same trend of thought is the judgment of the Kerala High Court in Abramai v. Commissioner of Sales Tax [1958] 9 S.T.C. 780.

15. Coming next to the Supreme Court decision in Chatturam Horilram Ltd. v. Commissioner of Income-tax, Bihar and Orissa [1955] 27 I.T.R. 709, we are not persuaded that it renders any assistance to the petitioner. One of the questions that fell to be considered by their Lordships of the Supreme Court was whether, if the earlier assessment proceedings failed owing to the fact that the Finance Act of 1939 was not extended to Chota Nagpur it would be a case of a chargeable income escaping assessment and not a case of mere non-assessment of income-tax. It is in the context of this enquiry that Jagannadhadas, J., who delivered the opinion of the Court, made the following observations called in aid by the learned counsel for the petitioner:-

Thus, under the scheme of the Income-tax Act, the income of an assessee attracts the quality of taxability with reference to the standing provisions of the Act but the payability and the quantification of the tax depend on the passing and the application of the annual Finance Act. Thus, income is chargeable to tax independent of the passing of the Finance Act but until the Finance Act is passed no tax can be actually levied.

16. We fail to see what support could be derived by the petitioner from these observations. It is not stated therein that the liability or obligation to pay the tax does not arise till the assessment is made. On the other hand, it was observed that the quality of taxability is with reference to the standing provisions of the Act. That is, it is with reference to the charging section. It is only the payability and the quantification that is dependent on the annual Finance Act.

17. Says his Lordship :-

A comparison of Sections 3 and 6 of the Act shows that the Act recognises the distinction between chargeability and the actual operation of the charge.

18. Thus, if we may say so with respect, his Lordship brings out with force the distinction between the liability to pay tax and the actual payability thereof. Earlier in the judgment, he quotes with approval the passage in Whitney v. Commissioners of Inland Revenue [1926] A.C. 37 extracted by us in the earlier part of our judgment and refers to the same idea expressed in a slightly different language by Lord Romer in the judgment of the Privy Council reported in Commissioner of Income-tax, Bombay Presidency and Aden v. Khemchand Ramdas [1938] 6 I.T.R. 414. Thus, the remarks in the judgment of the Supreme Court relied on by the learned counsel for the petitioner, far from advancing the position contended for by him, militate against it.

19. We may here extract a passage in the judgment of the Federal Court in Chatturam v. Income-tax Commissioner, Bihar A.I.R. 1947 F.C. 32 at 35, construing the provisions of the Indian Income-tax Act :

The income-tax assessment proceedings commence with the issue of a notice. The issue or receipt of a notice is not, however, the foundation of the jurisdiction of the Income-tax Officer to make the assessment or of the liability of the assessees to pay the tax. It may be urged that the issue and service of a notice under Section 22(1) or (2) may affect the liability under the penal clauses which provide for failure to act as required by the notice. The jurisdiction to assess and the liability to pay the tax, however, are not conditional on the validity of the notice. Suppose a person, even before a notice is published in the papers under Section 22(1), or before he receives a notice under Section 22(2) of the Income-tax Act, gets a form of return from the income-tax office and submits his return, it will be futile to contend that the Income-tax Officer is not entitled to assess the party or that the party is not liable to pay any tax because notice had not been issued to him. The liability to pay the tax is founded on Sections 3 and 4 of the Income-tax Act which are the charging sections. Section 22 etc., are the machinery sections to determine the amount of tax.

20. The above passage makes it abundantly clear that the obligation to pay the tax is not consequent upon the assessment, the purpose of which is, as we have already pointed out, to quantify it. The liability flows from the charging Section 5. The assessment merely particularizes the exact sum which the assessee will have to pay. It is unnecessary to multiply citations in this behalf. Suffice it to say that the clause under notice saves the liability imposed by Section 5 and does not require, to attract it, the quantification of the tax. The specific purpose of Section 41 of the Andhra Pradesh General Sales Tax Act, 1957, is to keep alive the rights acquired and the liabilities incurred under the Act which was abrogated. If we accept the interpretation placed upon it by the learned counsel, it destroys such a liability. The underlying idea of this proviso is to see that the State does not lose the revenue earned under the repealed Act. This purpose will be defeated instead of advancing the object for which the proviso was enacted, if we agree that it yields to the interpretation suggested by the learned counsel. It is a cardinal rule of interpretation of laws that a construction which renders nugatory the purpose of an Act should be avoided.

21. There is also another aspect of the proviso which should not be overlooked in this context. The proviso commences with the words, "Provided that such repeal shall not affect the previous operation of" the Acts enumerated in the main body of the section. This again emphasizes the concept of the chargeability to tax being saved by the proviso. The repealed Act operated to fix the liability on all the dealers whose turnovers exceeded a particular figure, its central theme thereof being the imposition of tax on the sellers as also the purchasers of commodities covered by that Act. From whichever angle the matter may be viewed, the conclusion is inescapable that the proviso protects all obligations incurred by virtue of purchases or sales made under the repealed Act. When once that is saved, it is open to the department to quantify that obligation or liability by making the assessment and to collect it and, in the event of failure in making the payment, to have resort to the machinery set up for the collection of the tax. We, therefore, see nothing illegal either in assessing the petitioner to tax or demanding the payment thereof.

22. In the result, the writ petition fails and is dismissed. There will be no order as to costs.