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The State Of A.P v. M/S. Varre Pothuraju And G. Simhachalam .
Structured Summary of the Opinion (T.R.C. Nos. 7 & 9 of 1962)
Factual and Procedural Background
The respondent is a dealer in bullion and jewellery at Rajahmundry. For the year 1955-56 the Commercial Tax Officer provisionally assessed the dealer's turnover at Rs. 1,22,605-8-3, though the dealer had filed a return showing gross and net turnover of Rs. 1,98,460-3-0. The assessing authority, dissatisfied with the books and having found suppressed turnover amounting to Rs. 21,107-8-0 over two and a half months, estimated the turnover at Rs. 2,40,675-3-0 (best judgment assessment).
The Deputy Commissioner of Commercial Taxes, claiming to act in exercise of revisional jurisdiction, called on the assessee to show cause why turnover should not be enhanced and, after rejecting the assessee's objections (including a contention as to his power to re-open the assessment), made a best judgment assessment fixing turnover at Rs. 5,33,364-3-0.
The assessee appealed to the Andhra Pradesh Sales Tax Appellate Tribunal. The Tribunal's Chairman agreed that the Deputy Commissioner could make a re-assessment, but the other two members held that enhancing turnover was a function of the assessing authority and not of the revisional authority; the Tribunal, by majority, accepted the assessee's appeal and set aside the Deputy Commissioner's order.
The State Government filed the present revision (T.R.C. No. 7 of 1962) challenging the Tribunal's majority decision; T.R.C. No. 9 of 1962 raises the same principle and is similarly disposed of. Advocates' fee for both cases was fixed at Rs. 250.
Legal Issues Presented
- Whether it is within the authority of the revising body (the Deputy Commissioner of Commercial Taxes exercising revisional jurisdiction under the General Sales Tax Act) to re-open or re-determine an assessment made by the Commercial Tax Officer (i.e., to enhance turnover determined by the assessing authority).
Arguments of the Parties
State / Government Pleader
- Maintained that the relevant revisional provision (Section 20 of the Andhra Pradesh General Sales Tax Act and its counterpart Section 12 of the Madras Act) is broadly worded and that the revising authority can deal with orders of assessment in an unfettered manner — essentially that the revising authority may re-open or re-assess as it sees fit.
Respondent / Assessee
- Objected to the Deputy Commissioner's power to re-open the assessment; contended that the power to enhance turnover or to re-assess in the manner done was vested in the assessing authority and not in the revisional authority.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State of Madras v. Louis Dreyfus and Company Ltd. [1955] 6 S.T.C. 318 at 329 | The distinction between revisional jurisdiction to correct assessments (Rule 14(2) / provisions akin to Section 14(1)) and the jurisdiction to re-open assessments for "escaped turnover" (Rule 17(1) / provisions akin to Section 14(4)); Rule 17(1) (and its analogue) is directed at turnover that escaped assessment and thus belongs to the assessing authority. | The Court relied on the principle in that judgment to hold that the Deputy Commissioner acted under the concept of "escaped turnover" (Section 14(4)), a function assigned to the assessing authority, and therefore had no competence as revisional authority to re-determine the turnover; the Louis Dreyfus analysis was treated as directly applicable and persuasive. |
Court's Reasoning and Analysis
The Court began by identifying the statutory provisions relevant to revisional power: Section 20 of the Andhra Pradesh General Sales Tax Act (and its counterpart Section 12 of the Madras Act). These provisions are broadly worded and permit the Board of Revenue or specified officers to call for and examine subordinate records for legality and propriety.
The Court examined the role and content of the assessing provisions in Section 14 of the Andhra Pradesh Act. Section 14(1) authorizes an assessing officer to assess on the basis of a return if satisfied; if the return appears incorrect or incomplete, the assessing officer may, after opportunity and inquiry, assess to the best of his judgment. Section 14(4) deals with situations where whole or part of the turnover has escaped assessment, permitting the assessing authority within four years to assess such escaped turnover and levy penalties in specified circumstances.
Factually, the Commercial Tax Officer had made a best judgment estimate under Section 14(1) (or its corresponding provision), arriving at approximately Rs. 2,40,000. The Deputy Commissioner then re-assessed and fixed turnover at roughly Rs. 5,33,364, effectively treating the matter as one of escaped turnover and increasing the assessed turnover by several lakhs.
The Court emphasized the distinction between the concepts embodied in subsections (1) and (4) of Section 14: subsection (1) covers corrections within an assessing exercise where the full turnover is before the assessing officer, while subsection (4) addresses turnover that has escaped assessment and vests the power to assess such escaped turnover specifically in the assessing authority. These two concepts are mutually exclusive for the purposes of allocation of functions.
Applying this conceptual distinction to the facts, the Court concluded that the Deputy Commissioner, by substantially increasing turnover on the ground that turnover had escaped assessment, was exercising a power of the nature contemplated by Section 14(4) — a power vested in the assessing authority, not in an officer sitting in revisional jurisdiction under Section 20 (or Section 12 in the Madras Act). The Court found that the revisional power (Section 20/12) does not extend to powers vested in the assessing authority by Section 14(4) (or the analogous Rule 17(1) under Madras rules).
The Court reinforced this statutory analysis by reference to the Madras High Court Full Bench decision in State of Madras v. Louis Dreyfus & Co. Ltd., which distinguished the jurisdictions to revise assessments from the jurisdiction to re-open for escaped turnovers and explained that the "escape" mischief targeted by the re-opening provisions is of turnover, not merely defective assessment. The Louis Dreyfus doctrine was applied to conclude that the Deputy Commissioner's action was beyond his competence.
On this statutory and precedential basis, the Court held that the Deputy Commissioner's order re-determining the turnover was invalid and that the majority decision of the Sales Tax Appellate Tribunal, which set aside that order, was correct.
Holding and Implications
Holding: The revision is dismissed. The Court held that the Deputy Commissioner of Commercial Taxes exceeded his revisional jurisdiction by re-determining (re-opening) the assessment on the basis that turnover had escaped assessment — a power vested in the assessing authority under Section 14(4) and not in the revisional authority under Section 20 (or Section 12 of the Madras Act).
Direct consequences for the parties:
- The Deputy Commissioner's best judgment assessment fixing turnover at Rs. 5,33,364-3-0 was declared invalid and was correctly set aside by the majority of the Sales Tax Appellate Tribunal.
- The State's revision in T.R.C. No. 7 of 1962 was dismissed, but without costs.
- The principle was applied to T.R.C. No. 9 of 1962, which was also dismissed without costs.
- Advocates' fee in T.R.C. Nos. 7 and 9 of 1962 was fixed at Rs. 250.
Implications beyond the parties: The opinion rests on statutory construction and an existing precedential distinction (Louis Dreyfus). The text of the opinion does not elaborate broader policy consequences beyond the direct effect on the orders in these cases.
T.R.C. No. 7 of 1962.
1. This revision filed by the State of Andhra Pradesh against the majority decision of the Andhra Pradesh Sales Tax Appellate Tribunal involves a question relating to the revisional jurisdiction of the Deputy Commissioner of Commercial Taxes.
2. Before we embark upon a discussion of the problem that presents itself here, we will have to state a few material facts. The respondent is a dealer in bullion and jewellery at Rajahmundry. This firm was provisionally assessed for the year 1955-56 on a turnover of Rs. 1,22,605-8-3 by the Deputy Commercial Tax Officer, Rajahmundry II. They filed a return for 1955-56 showing a gross and net turnover of Rs. 1,98,460-3-0. As the assessing authority was not satisfied that the books of account were correctly maintained and as it found that a turnover totalling Rs. 21,107-8-0 was suppressed in the course of two and a half months, estimated the turnover to the best of his judgment at Rs. 2,40,675-3-0.
3. The Deputy Commissioner of Commercial Taxes, who was apprised of the estimate made by the Commercial Tax Officer, purporting to act in the exercise of his revisional jurisdiction, called upon the assessee to show cause why the turnover should not be enhanced by him.
4. Various objections were formulated by the assessee among them being the one pertaining to his power to re-open the assessment.
5. The Deputy Commissioner rejecting all the contentions of the assessee made in his turn a best judgment assessment fixing the turnover at Rs. 5,33,364-3-0. It is unnecessary for us to mention the formula adopted by him in arriving at this turnover, having regard to our view regarding his power to re-open the assessment.
6. Aggrieved by this decision, the assessee carried the matter in appeal to the Sales Tax Appellate Tribunal. While the Chairman of the Tribunal was of the view that it was within the competence of the Deputy Commissioner of Commercial Taxes to make a re-assessment, the other two members decided that the revising authority could not enhance the turnover as that was one of the functions assigned to the assessing authority and not to the appellate or the revisional authority. In the result, the appeal of the assessee was accepted by the Tribunal.
7. It is to revise that order that the State Government has preferred this revision. In support of this revision, it is urged by the learned Government Pleader that the majority of the Tribunal erred in placing a restricted construction upon the relevant provision of law that confers power of revision upon the Deputy Commissioner of Commercial Taxes. The short question that calls for determination in this revision is whether it is within the authority of the Tribunal exercising revisional jurisdiction under the General Sales Tax Act to re-open the assessment made by the Commercial Tax Officer.
8. The answer to this depends upon the interpretation of Section 20 of the Andhra Pradesh General Sales Tax Act, which corresponds to Section 12 of the Madras General Sales Tax Act, which was the provision that was in operation at the time when the assessment was made. It makes no difference for the purpose of this enquiry whether it is Section 20 or Section 12 that governs the present case, as Section 20 of the Andhra Pradesh General Sales Tax Act is in pari materia with Section 12 of the Madras General Sales Tax Act. It is convenient at this stage to quote the relevant provisions of section 20 which is the source of authority for the Revenue as well as the Deputy Commissioner of Commercial Taxes, etc.
9. Section 20, in so far as it is of immediate relevancy, postulates :
(1) The Board of Revenue may suo motu call for and examine the record of any order passed or proceeding recorded by any authority, officer or person subordinate to it, under the provisions of this Act, including Sub-section (2) of this section, for the purpose of satisfying itself as to the legality or propriety of such order or as to the regularity of such proceeding and may pass such order in reference thereto as it thinks fit.
(2) Powers of the nature referred to in Sub-section (1) may also be exercised by the Deputy Commissioner and the Commercial Tax Officer in the case of orders passed or proceedings recorded by authorities officers or persons subordinate to them.
* * *
10. Section 12 is couched in identical language except for the difference that this section contains the expression "in its discretion" instead of "suo motu". It is the language of these two sections that prompted the learned Government Pleader to advance the broad proposition that the revising authority can deal with the orders of assessment in any way he liked untramelled by any considerations.
11. We are reluctant to accept this view of the learned Government Pleader. It is true that Section 20 as also Section 12 are moulded in wide terms. But, does the width or amplitude of these sections enable the revising authority to exercise unrestricted power in dealing with the order of the assessing officer ? We feel that the precise content of this power has to be gathered from Sections 20 and 14 of the Andhra Pradesh General Sales Tax Act, which are analogous to Section 9 of, and the relevant rules made under, the Madras General Sales Tax Act.
12. We will read here Section 14 in so far as it has a bearing on this enquiry:
14. (1) If the assessing authority is satisfied that any return submitted under Section 13 is correct and complete, he shall assess the amount of tax payable by the dealer on the basis thereof ; but if the return appears to him to be incorrect or incomplete he shall, after giving the dealer a reasonable opportunity of proving the correctness and completeness of the return submitted by him and making such enquiry as he deems necessary, assess to the best of his judgment, the amount of tax due from the dealer. An assessment under this Section shall be made only within a period of four years from the expiry of the year to which the assessment relates.
* * * (4) Where, for any reason, the whole or any part of the turnover of business of a dealer has escaped assessment to tax, or has been under assessed or assessed at too low a rate, or where the licence fee or registration fee has escaped levy or has been levied at too low a rate, the assessing authority may, at any time within a period of four years from the expiry of the year to which the tax or the licence fee or registration fee relates, assess the tax payable on the turnover which has escaped assessment or levy the correct amount of licence fee or registration fee, after issuing a notice to the dealer and after making such inquiry as he considers necessary. Such authority may also direct the dealer to pay in addition to the tax so assessed, a penalty not exceeding one and half times the amount of that tax, if the turnover had esdaped assessment or had been under-assessed or assessed at too low a rate by reason of its not being disclosed by the dealer:
Provided that before issuing any direction for the payment of any penalty under Sub-section (2), Sub-section (3) or Sub-section (4), the assessing authority shall give the dealer a reasonable opportunity to explain the omission to disclose the information, and make such inquiry as he considers necessary.
13. Indisputably, it is under Section 14(1) of the Andhra Pradesh General Sales Tax Act, which corresponds to Section 9(2) (b) of the Madras General Sales Tax Act, that the Commercial Tax Officer estimated the turnover to the best of his judgment. What the Deputy Commissioner of Commercial Taxes did in this case was that, he enhanced the turnover by making a best judgment assessment. He thought that a substantial part of the turnover was omitted to be taken into account by the Commercial Tax Officer in making the estimate.
14. Whether there is any basis for that assumption or not is a different matter and we need not pause here to consider that aspect of the matter, the only controversy arising in this matter being whether he had power to redetermine the turnover. In the context of this enquiry, we have to bear in mind the fact that it is not the Deputy Commissioner of Commercial Taxes that is the assessing authority within the contemplation of the General Sales Tax Act, that duty being allotted only to the Assistant and Deputy Commercial Tax Officers. That being the position, we have first to decide whether this matter falls within the sweep and range of Sub-section (1) or within the scope of Sub-section (4) of Section 14. In our considered opinion, the function performed by the Deputy Commissioner in this case is the one within the connotation of section 14(4). As already mentioned, the Deputy Commissioner felt that a considerable part of the turnover escaped assessment to tax. At the risk of repetition, we may state that the Commercial Tax Officer estimated the turnover at about Rs. 2,40,000. The revising authority determined it at about Rs. 5,00,000. In other words, he felt that a turnover of nearly Rs. 3,00,000 escaped assessment to tax and that it should be brought to tax. This is not a case where the whole of the turnover was before the assessing authority and he thought that the entirety of the turnover could not be subjected to tax but only a part of it or that reduction should be granted in regard thereto. This is a case where the revising authority increased the turnover by more than two and a half lakhs. That being so, there can be little doubt that what the revising authority did falls under Sub-section (4). Sub-section (1)and Sub-section (4) embody two different concepts and they are mutually exclusive. It is only in regard to matters coming under Sub-section (1) that the revising authority is empowered to invoke Section 20 of the Andhra Pradesh General Sales Tax Act or Section 12 of the Madras General Sales Tax Act, as the case may be. It does not extend to powers vested in the assessing authority by Sub-section (4) of the Andhra Pradesh General Sales Tax Act or Rule 17(1) of the rules framed under the Madras General Sales Tax Act, which resembles Section 14(4). The duty to be discharged under section 14(4) is vested in the assessing authority and not in the officers that constitute appellate or revisional authority.
15. In this view of ours, we are reinforced by a judgment of the Madras High Court in State of Madras v. Louis Dreyfus and Company Ltd. [1955] 6 S.T.C. 318 at 329 It is true that the problem to be solved by the Full Bench of the Madras High Court in that case pertained to Rules 14(2) and 17(1) of the Madras General Sales Tax Rules, 1939. But they are analogous to those to be dealt with by us. In fact, one of them was the provision in force at the time when the assessment was made. So, the principle enunciated by the learned Judges in that case has full vigour in the context of this enquiry.
16. Dealing with the question as to when a turnover can be said to have escaped assessment to tax, this is what Rajamannar, C.J., who spoke for the Court, observed :
No doubt in a general sense both Rule 14(2) as well as Rule 17(1) serve a common purpose, viz., to gather revenue which has improperly escaped, but while Rule 14(2) is directed to the correction of improper or illegal assessment orders which have levied less or more tax than justified, Rule 17(1) lays emphasis on escaped turnover. The distinction between the two provisions might be expressed by saying that Rule 14(2) deals with escaped assessments and 17(1) with escaped turnovers, notwithstanding that the latter also would mean that a lesser amount of tax has been levied. So understood the two provisions would be completely reconcilable and the two jurisdictions-to revise assessments and to re-open-would each be assigned to the proper authority.
The language of Rule 17(1) is consistent with this construction. The 'escape' that serves as the foundation of the jurisdiction to reopen an assessment is that of 'turnover' and not, be it noted, an assessment. 'Turnover' escapes when it is not noticed by the officer either because it is not before him by reason of an inadvertence, omission or deliberate concealment on the part of the assessee, or because of want of care on the part of the officer the turnover though in the books has not been taken notice of. This would be the natural and normal meaning of the expression 'turnover which has escaped' in Rule 17(1).
17. The doctrine as stated in the above passage governs equally the instant case. There can be little doubt that the Deputy Commissioner re-estimated or re-assessed the turnover on the assumption that a good part of the turnover had escaped assessment to tax. This being a clear case of escape of the turnover, it cannot but attract Sub-section (4) of Section 14. If that were the correct legal position, it was beyond the competence of the revising authority to re-determine the turnover or to re-estimate it as that is a function assigned to the assessing authority by Sub-section (4) of Section 14. It follows that the order of the Deputy Commissioner of Commercial Taxes that is the subject-matter of this revision, was invalid and was rightly set aside by the majority of the members of the Sales Tax Appellate Tribunal.
18. In the result, the tax revision case is dismissed, but without costs.
T.R.C. No. 9 of 1962.
19. The principle embodied in T. R. C. No. 7 of 1962 applies to this case also. This tax revision case also is dismissed but without costs.
20. Advocates' fee in T.R.C. Nos. 7 and 9 of 1962 is fixed at Rs. 250 (two hundred and fifty).
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