East Asiatic Co. (India) Ltd. v. State Of Madras

1. These are two connected suits-filed by the East Asiatic Company Limited against the State of Madras, represented by the Collector of Madras for an injunction restraining the defendant or any its officers or servants from, demanding, collecting or realizing from the plaintiff the sum of Rs. 14,102-5-4 and Rs. 18,295-12-6 or any part thereof being the additional sales tax sought to be illegally levied on the plaintiff for the years 1945-1946 and 1946-1947. The case for the plaintiff is: The plaintiff during the assessment years 1945-1946 and 1946-1947 bought and crushed groundnut kernels as manufacturer of groundnut oil and cake and effected sales and delivery of part of groundnut oil so manufactured outside the Province. The total turnover of the oil so sold and delivered outside the Province of Madras in 1945-1946 was Rs. 18,29,578-4-1 and Rs. 14,20,234-1-0 for the year 1946-1947.

2. The Deputy Commercial Tax Officer, Harbour Division, Madras did not assess to sales-tax these-two turnovers relating to sale outside the Province of Madras. The Commercial Tax Officer North Madras, on 3-7-1947, confirmed this order of the Deputy Commercial Tax Officer. On 4-3-1950 the plaintiff received notices dated 24-2-1950 from the Commercial Tax Officer, North Madras, appraising the plaintiff of his intention to revise the assessment of sales tax for the years 1945-1946 and 1946-1947 so as to include these two turnovers-referred to above.

3. The plaintiff thereupon submitted their objections by their letter dated 14-3-1950 viz. (1) The plaintiff pointed out among other things that the Commercial Tax Officer having exercised his-power in appeal he was not competent to assess-this assessee to sales-tax in respect of the years ended 31-3-1946 and 31-3-1947; (2) that he had no jurisdiction to exercise the powers under S. 12: of the Act and R. 14 of the Madras General Sales Tax Rules; (3) that his action was illegal; (4) that the Commercial Tax Officer has not conformed to R. 17(1) of the Madras General Sales Tax Rules even if he intended to treat this as a case of escaped assessment; and (5) the terms of contracts in the years 1945-1946 and 1946-1947 in respect of the said sales of groundnut oil were such that the sales and delivery under the contract terms, cannot be stated as having taken place within the Province of Madras.

4. The plaintiff also urged for due consideration of their rights to a deduction under R. 18 of the Madras General Sales Tax (Turnover and the Assessment) Rules as they are manufacturers of groundnut oil and cake. The plaintiff also claimed under Section 7 of the Act a rebate of one half of the tax on the turnover after allowing for the aforesaid deduction in respect of the groundnut-kernel purchased and converted into oil.

5. The Commercial Tax Officer by his order dated 31-3-1950 directed the Deputy Commercial Tax Officer to issue a revised B form notice of assessment and demand to the plaintiff. The-plaintiff thereupon on 24-4-1950 filed revision petitions before the Board of Revenue against the order of the Commercial Tax Officer and by ans order dated 25-9-1950 the Board of Revenue dismissed those revision petitions. These suits have thereupon been filed for the above mentioned reliefs.

6. The stand taken by the State of Madras is that these impugned sales took place within the Province of Madras and secondly, that the Commercial Tax Officer had revisional jurisdiction to revise the assessment and thirdly, that the plaintiffs are not entitled to the deduction and the rebate claimed by them.

7. On these contentions the following issues were framed:

C.S No. 111 of 1951.

1. Whether the Commercial Tax Officer is not entitled to reopen and revise the assessment of the sales tax on the turnover of Rs. 14,10,234-1-0 of the plaintiff for the year 1946-1947?

2. Whether the plaintiff is entitled to any deduction or rebate?

3. Whether the sale of groundnut oil was outside the Province as alleged by the plaintiff and if so of what quantity?

4. Whether the Commercial Tax Officer has jurisdiction to exercise powers under Section 12 of the Act and R. 14 of the General Sales Tax Rules, and whether he has conformed to R. 17(1) in treating the assessment as escaped assessment?

5. To what reliefs are the parties entitled?

C.S No. 112 of 1951.

1. Whether the Commercial Tax Officer is not entitled to reopen and revise the assessment of the sales tax on the turnover of Rs. 18,29,578-4-1 of the plaintiff for the year 1945-1946?

2. Whether the plaintiff is entitled to any deduction or rebate?

3. Whether the sale of groundnut oil was outside the Province as alleged by the plaintiff and, if so, of what quantity?

4. Whether the Commercial Tax Officer has jurisdiction to exercise powers under Section 12 of the Act and R. 14 of the General Sales Tax Rules, and whether he has conformed to R. 17(1) in treating the assessment as escaped assessment?

5. To what reliefs are the parties entitled?

8. Before me the plaintiff examined one of their managers as P.W 1 in both the suits and the defendant adduced no oral evidence. The plaintiff filed Exs. P-1 to P-17 in C.S 111 of 1951 and Exs. P-1 to P-15 in C.S 112 of 1951.

9. On a review of the entire circumstances of the case I have come to the conclusion that the sales in question took place within the Province of Madras; secondly, that the Commercial Tax Officer had revisional jurisdiction to impose additional assessment which he has done; that as regards 1945-1946 the levy of assessment is hit at by R. 17(1) and that there is no such impediment in regard to 1946-1947 and that the plaintiff is entitled to the deduction claimed but not to the rebate asked for. Here are my reasons.

10. Point 1: In a sale as denned under the Act, the following characteristics must be present viz. (a) a transfer of property (b) in goods (c) from one person to another (d) in the course of trade or business (e) for cash deferred payment, or other valuable consideration. A correct and clear concept of what the word ‘sale’ means and includes in essential as the tax is levied on a sale of goods.

11. It is always difficult to determine the exact time and place of passing of property so as to attract the levy of sales tax. Lord Macmillan in (delivering the judgment of the Privy Council in — ‘King v. Dominion Engineering Co. Ltd.’, AIR 1947 PC 94 (A), observed as follows:

“In imposing a sales tax one of the difficulties which confront the legislature lies in the selection of the point of time at which the tax shall attach and become due. In the case of an ordinary retail sale for cash across the counter of a shop the stages of agreement, appropriation of the goods to the contract, delivery, payment of the price and passing of property are all practically simultaneous.

But in more complicated transactions for the sale of goods to be produced or manufactured these stages may be spaced in time in various ways”.

12. The passing or transfer of property constitutes the most important element in the law relating to contracts for the sale of goods. If goods are destroyed by fire or otherwise, it is essential to know who has to bear the loss; and in bankruptcy of either party, it is essential to know whether goods vest in bankrupt's trustee or not.

13. Section 18 of the Indian Sale of Goods Act & the five following sections of the said Act deal with the question of transfer of property as between seller and buyer and distinguish for that purpose a contract for the sale of unascertained goods from a contract for the sale of ascertained goods. According to the principle underlying Sections 18 and 19 of the Sale of Goods Act the property in the goods does not pass to the purchaser until he exercises an option and selects the article.

14. Consequently, where it was left to the purchaser to choose one of the two tins of ‘Rung’ the sale would not be complete until he had exercised his choice and on his failure to do so he could not be held liable for the Drice: — ‘Pukraj v. Maghraj’, 1939 Mar LR 103 Civ (B).

15. Thus the ascertainment of the goods is, condition on which the transfer of the property depends. In any given case there may be a question whether this condition is fulfilled or not, and it may be that the property will not pass even if it is fulfilled, but until it is, there is no possibility of the property passing; or as put by Lord Blackburn,

“It is essential that the article should be specified and ascertained in a manner binding on both parties, for unless that be so the contract cannot be construed as a contract to pass the property in that article. It is a question of the construction of the contract in each case at what stage the property shall pass and a question of fact whether that stage has been reached: — ‘Seath v. Moore’, (1886) 11 AC 350 at p. 370 (C)”.

16. The term “specified goods” is defined in the Act as meaning goods identified and agreed upon at the time a contract of sale is made. Chief instances of “unascertained goods” are “future goods” that is to say, articles to be manufactured or acquired, or a certain quantity of goods in general, without a specific identification of them, or an “appropriation” of them to the contract.

“Ascertained goods probably mean goods identitled in accordance with the agreement after the time a contract of sale is made”. Per Atkin, J., — ‘In re, Wait’, 1927-1 Ch 606 at p. 630 (D). Therefore when it appears that the contract attaches to specific or ascertained goods, so that it is possible that the property may be transferred to the buyer, it becomes necessary to determine whether it has been transferred in fact, and as Lord Blackburn wrote (Blackburn on Sale, p. 123)

“This is properly speaking a question depending upon the construction of the agreement, for the law professes to carry into effect the intention of the parties as appearing from the agreement, and to transfer the property when such is the intention of the agreement, and not before. In this, as in other cases, the parties are act to express their intention obscurely, very often because the circumstances rendering the point of importance were not present to their minds, so that they really had no intention to express.

The consequence is that, without absolutely losing sight of the fundamental point to be ascertained, the Courts have adopted certain rules of construction which in their nature are more or less technical”.

17. Section 19 of the Sale of Goods Act reproduces this statement in statutory form, and the rules of construction adopted by the Courts are those set out in Sections 20 to 24.

18. Sub-sections (1) and (2) of S. 19 expressly declare that in each case the intention of the parties, as expressed in the contract or to be Inferred from their conduct and other circumstances of the case, is to be regarded.

19. Applying these principles to the facts of this case, the circumstances relied upon by the State for establishing that the sales took place within the Province are:— The terms of the contract in the above sales are that the buyers should supply well-cleaned and sound empty drums for packing the purchased oil. The buyers were to bear the costs of packing the goods to be of the quality which was the average for the factory at the time of delivery.

20. The buyers were given the option of checking the weight and quality of the goods before packing and before they left the factory. The buyer either actually ascertained and accepted the weight and quality of the goods or by implication the weight and quality as ascertained by the seller when the goods were packed as before they left the mill for shipment to Calcutta. The price was for delivery ex-sellers, Royapuram Oil Factory, freight paid on buyer's account at Madras.

21. The expenses such as carting, shipping and harbour dues and other charges were to be incurred on buyer's account. The contract deeds were signed by the Madras Office of the sellers.

22. On shipment of the goods at Madras a telegraphic advice is sent to Calcutta for arranging payment of the price at Madras. The shipments from Madras to Calcutta have gone as export by the buyers and under their export licences, the sellers acting as mere shippers.

23. The goods were shipped to Calcutta to account of the buyers. Insurance for all risks was arranged by buyers commencing from ship's slings to destination. Any damage or loss to goods during shipment are for account of buyers. On reaching destination payment was to be by cash payment against documents to be presented to buyers in Calcutta through sellers' office there and no Madras Sales Tax was to be charged.

24. The delivery was Ex-sellers' Royapuram Oil Factory as per quality and weight ascertained at the Mill during specified months as stocks permit but not later than the last day of each month in advance at Calcutta, for which ¼th per cent, transfer commission for buyers' account was charged. On goods reaching the destination if the buyer did not take delivery and make cash payment there were stipulations that time would be extended for payment or that they would be sold at the risk of the buyer.

25. The State of Madras contend that these circumstances show that the sales were effected in the Province of Madras and not in Calcutta as 1 represented by the plaintiff company and believed by the assessing officer: vide — ‘Louis Dreyfus & Co. Ltd. v. South Arcot Groundnut Market committee’, AIR 1945 Mad 383 (E); — ‘Siddique M. & Co. v. Mysore Textiles Agencies’, AIR 1947 Mad 455 (P); — ‘Sagarmal Sawarmal… v. The State Of Assam’, AIR 1953 Assam 68 (G) and — ‘Poppatlal Shah v. State of Madras’, AIR 1953 SC 274 (H).

26. On the other hand the contention of the plaintiff company is that the contract between the parties was that the property in the goods was to pass only at Calcutta, that the supply of drums by the buyer was only optional, that clause 13 and other clauses of the contract were not intended to be operative as is evident from the several blanks left unfilled in the contract forms, that the understanding between the parties was that the property in the goods should pass only at Calcutta, that the conduct of the parties made it clear that the property was not intended to pass and could not have passed until the goods were delivered at Calcutta and that till that time there was no ascertainment of goods and the property continued to be legally and physically with the company till the buyers paid at the Calcutta Office and took delivery and that the carriers documents were in the name of the company.

27. The only point of substance that is urged on behalf of the company is that the entry in all the contracts against delivery is cash payments against documents to be presented to buyers in Calcutta through sellers' office there as the other circumstances are all consistent with the transfer of property within the Province of Madras.

28. Therefore, the question which has got to be decided is, did possession of the documents by the company show that the plaintiff reserved the right of disposal or did possession of these documents was nothing more than a lien of the unpaid seller?

29. The following three extracts will make the point clear. In — ‘Mirabita v. Imperial Ottoman Bank’, (1878) 3 Ex. D 164 at p. 172 (I) Lord Justice Cotton observed:

“Under a contract for sale of chattels not specific the property does not pass to the purchaser unless there is afterwards an appropriation of the specific chattels to pass under the contract, that is, unless both parties agree as to the specific chattels in which the property is to pass, and nothing remains to be done in order to pass it.

In the case of such a contract the delivery by the vendor to a common carrier, or (unless the effect of the shipment is restricted by the terms of the bill of lading) shipment on board a ship of, or chartered for, the purchaser, is an appropriation sufficient to pass the property.

If, however, the vendor when shipping the articles which he intends to deliver under the contract, takes the bill of lading to his own order, and does so not as agent or on behalf of the purchaser, but on his own behalf, it is held that he thereby reserves to himself the power of disposing of the property, and that consequently there is no final appropriation, and the property does not on shipment pass to the purchasers.

When the vendor on shipment takes the bill of lading to his own order he has the power of absolutely disposing of the cargo, and may prevent the purchaser from ever asserting any right of property therein and accordingly in — ‘Wait v. Baker’, (1848) 2 Ex. 1 (J); — ‘Ellershaw v. Magniac’, (1843) 6 Ex. 570n (K) and — ‘Gabarron v. Kreeft’, (1875) 10 Ex. 274 (L) (in each of which cases the vendors had dealt with the bills of lading for their own benefit), the decisions were that the purchaser had no property in the goods, though he had offered to accept bills for or had paid the price.

So, if the vendor deals with or claims to retain the bill of lading in order to secure the contract price, as when he sends forward the bill of lading with a bill of exchange attached, with directions that the bills of lading is not to be delivered to the purchaser till acceptance or payment of the bill of exchange, the appropriation is not absolute, but, until acceptance of the draft, or payment or tender of the price, is conditional only, and until such acceptance, or payment or tender, the property in the goods does not pass to the purchaser and so it was decided in — ‘Turner v. Trustees of Liverpool Docks’, (1850-1951) 6 Ex. 543 (M); — ‘Shepherd v. Harrison’, (1871) 5 HL 116 (N) and — ‘Ogg v. Shuter’, (1875) 1 CP D 47 (O).

But if the bill of lading has been dealt with only to secure the contract price, there is neither principle nor authority for holding that in such a case the goods shipped for the purpose of completing the contract do not on payment or tender by the purchaser of the contract price vest in him.

When this occurs there is a performance of the condition subject to which appropriation was made, and everything which, according to the intention of the parties is necessary to transfer the property is done; and in my opinion, under such circumstances, the property does on payment or tender of the price pass to the purchaser.”

30. In ‘The Parchim’, 1918 AC 157 at pp. 170-171 (P) Lord Parker observed:

“The English cases, however, on which the Sale of Goods Act was founded seem to show that the appropriation would not be such as to pass the property if it appears or can be inferred that there was no actual intention to pass it.

If the seller takes the bill of lading to his own order and parts with it to a third person, not the buyer, and that third person, by possession of the bill of lading, gets the goods, the buyer is held not to have the property so as to enable him to recover from the third party, notwithstanding that the act of the seller was a clear breach of the contract: (1848) 2 Ex. 1 (J); (1875) 10 Ex. 274 (L).

This seems to be because the seller's conduct is inconsistent with any intention to pass the property to the buyer by means of the contract followed by the appropriation. On the other hand, if the seller deals with the bill of lading only to secure the contract price, and not with the intention of withdrawing the goods from the contract, he does nothing inconsistent with an intention to pass the property, and therefore the property may pass either forthwith subject to the seller's lien or conditionally on performance by the buyer of his part of the contract: (1878) 3 Ex.D 164 (I); — ‘Van Castele v. Broker’, (1848) 2 Ex. 691 (Q); — ‘Browne v. Hare’, (1858) 3 H & N 484 (R); — ‘Joyce v. Swann’, (1864) 17 CBNS 84 (S).

31. The ‘prima facie’ presumption in such a case appears to be that the property is to pass only on the performance by the buyer of his part of the contract and not forthwith subject to the seller's lien. Inasmuch as, however, as the object to be attained, namely, securing the contract price, may be attained by the seller merely reserving a lien, the inference that the property is to pass on the performance of a condition only is necessarily somewhat weak, and may be rebutted by the other circumstances of the case…”

32. The following passage from Mr. Benjamin's treatise (Benjamin on Sale, 7th Edition, p. 383) indicates at what stage property in goods shipped from one country to another may pass to the firm ordering the goods:

“If A in New York orders goods from B in Liverpool without sending the money for them, B may execute the order in one of two modes, without assuming risk: B may take the bill of lading, making the goods deliverable to his own order, or that of his agent in New York, and send, it to his agent with instructions, not to transfer it to A except on payment or the goods.

Or B may draw a bill of exchange for the price of the goods on A, and sell the bill to a Liverpool banker, transferring to the banker the bill of lading for the goods to be delivered to A on due payment of the bill of exchange. Now in-both these modes of doing business it is impossible to infer that B had the least idea of passing, the property to A at the time of appropriating the goods to the contract.

So that, although he may write to A, and specify the packages and marks identifying the goods, and although he may accompany this with an invoice, stating that these specific goods are-shipped for A's account, and in accordance with A's order, making his election final and determinate, the property in the goods will nevertheless remain in B till the bill of lading has been endorsed and delivered up to A.

And a third course now, under the Act, is available to the seller. He may draw upon the buyer a bill of exchange for the price, and may send it, together with the bill of lading ‘direct’ to him. In such a case, however, he trusts the buyer. In this class of cases it is often a matter of great nicety to determine whether or not the seller's intention was really to reserve a right of disposal.”

33. Applying these principles, the circumstances of this case show that the intention of the seller was not to retain the ‘jus disponendi’ but only a lien for unpaid seller's price. That this was the intention is also made clear by P.W 1 who to a question put that for the balance of payment of price the company held the document or with their agent only for the purpose of security or for the purpose of having a lien on the is unpaid purchase money, he applied in the affirmative.

34. Therefore, the position was that the seller after the goods left the factory was only as the buyer's agent or bailee and delivery terminated the lien of this unpaid seller; see “The Sale of Goods” by Clive M. “Schmitthoff (1951 Edn.) pages 109, 131 etc. Therefore, point (1) has got to be decided and is hereby decided in favour of the State viz. that the sales in question took place within the State of Madras.

35. Point 2: To appreciate the discussion under this head I have prepared and appended a comparative table of S. 12(1), S. 19. R. 14(2) and R. 17(1) in Act IX of 1939, amended Act 25 of 47 and amended Act 6 of 1951 which came into force on 1-10-39, 1-1-48 and 15-5-51 respectively.

36. In regard to this point there can be no dispute that the Sales Tax Act as amended by Act VI of 1951 is not applicable because it came into existence long after the revised assessment in question. Therefore the only two Acts which have got to be considered are the Sales. Tax Act as amended by Act IX of 1939 which came into force on 1-10-1939 and the Sales Tax Act as amended by Act XXV of 1947 which came into force on 1-1-1948.

37. The Commercial Tax Officer has purported to act under Section 12 of the Madras General Sales Tax read with rule 14(1) of the Madras General Sales Tax Act Rules framed under the Madras General Sales Tax Act, 1939 as amended by Madras Act XXV of 1947.

38. In regard to the invocation of reversional authority by the Tax Officer, two objections are preferred viz. that first of all this rule has no retrospective effect in regard to the assessment of 1945-1946; and secondly, that the Madras General Sales Tax Act Rules framed under the General Sales Tax Act IX of 1939 which would apply to this case does not confer authority on the Government to frame rules under section 19 as it has done under rule 14(2) conferring revisional powers on the Commercial Tax Officer; and even assuming that this rule is ‘intra vires’ under rule 17(1) thereunder, the assessment cannot be revised beyond a period of one year, whereas in this case it is revised beyond one year and within a period of three years.

39. On the facts of this case there can be no doubt that for the assessment of 1945-1946 the Act and Rules applicable are those of the General Sales Tax Act of 1939 and the Rules framed thereunder and as they stood before they were amended in 1947 and 1951. The rule that all statutes shall be deemed to be prospective only and not retrospective in their effect and operation has been the law of all nations from the earliest times and had been well established in England even by the time of Lord Coke.

‘Omnis Novaconstitution futuris temporibus fornam imponeri debet non proeteritis: prima facie’ a new law affects future transactions not the past. That a new law ought to be construed so as to interfere as little as possible with vested rights except in special cases has been a well-known and a trite maxim to the interpreter of laws. The rule is one based on justice and expediency and on the ground that all deprivation of existing rights is ‘prima facie’ wrong.

40. The law always views with disfavour ‘expost facto’ legislation except where it is absolutely necessary in the interests of the State or the safety and well-being of its subjects or the exigencies of Society. In each case it is a matter for the Legislature to decide and one lying entirely in its discretion.

41. Indian decisions have laid down the same rule in unmistakable terms. The Privy Council has laid down in one of the leading cases on the subject — ‘Delhi Cloth and General Mills Co. v. Income-tax Commissioner, Delhi” AIR 1927 PC 242 (T) that provisions in a statute which touch a right in existence at the passing of the same are not to be applied retrospectively in the absence of express enactment or necessary intendment of the same.

42. An exception is made in cases of provision dealing with matters of procedure which may properly be retrospective in effect but even here an exception is made in cases where such construction would be textually inadmissible (Ibid). The Privy Council pointed out in the above case that provisions, which if applied retrospectively would deprive orders, which were final at the date a statute came into force, of their existing finality, were provisions which touch existing rights.

43. Their Lordships based their judgment on the leading case of — ‘Colonial Sugar Refining Co. v. Irving’, 1905 AC 369 (U) which has since been uniformly cited and quoted with approval in all the Indian Courts.

44. (See the following Madras decisions on prospective and retrospective operation — ‘Venkata Perumal v. Ramudu’, AIR 1915 Mad 1022 (V); — ‘Chunnilal Sowcar v. Srinivasa Rao’, AIR 1946 Mad 262 (W); — ‘In re, K. China Rangiah’, AIR 1943 Mad 170 (X); — ‘Swaminatha Iyer v. Ramanatha Iyer’, AIR 1943 Mad 573 (Y); — ‘A.T Pannirselvam… v. A. Veeriah Vendayar….’, AIR 1931 Mad 83 (Z); — ‘Viswanatha Sastri v. Sitalakshmi’, AIR 1921 Mad 126 (Z1); — ‘Doraiswami Padayachi v. Vaithilinga Padayachi’, AIR 1918 Mad 548 (Z2); — ‘Veerabhadrayya v. Rajah Naganna’, AIR 1927 Mad 41 (Z3); — ‘Rajah of Kalahasti v. Kamakshamma’, AIR 1916 Mad 1035 (Z4); — ‘Srinivasalu v. Damodaraswami’, AIR 1938 Mad 779 (Z5).)

45. But the right which had accrued to the assessee viz. that the escaped assessment of tax cannot be reopened beyond a period of one year cannot be described as a matter relating to procedure only and it is a matter which was more than one relating to procedure, that is to say it touched a right in existence.

46. Thus, amendments in the Income-tax law made in the course of a financial year take effect only from the assessment relating to the next financial year, except when expressly laid down to the contrary: — ‘In re, Mishrimal Gulabchand’, AIR 1950 All 270 (Z6); See also — ‘Commissioner of Income-tax, West Bengal v. Isthmian Steamship Lines’, AIR 1953 SC 439 (Z7).

47. But the date from which an amendment or a new provision in the law takes effect does not necessarily preclude the application of the new provision to a re-opening of already concluded matters. The fact that a section came into operation on a certain date does not necessarily mean that it cannot be applied to earlier facts; the new or amended section has to be examined on its own words.

48. If under the ordinary rule of construction it can be discovered whether and to what extent it has retrospective effect, then retrospective effect can be given effect to. This is not the case here and neither by explicit terms nor by necessary implication can we deduce a retrospective effect so as to entitle the disturbing of the finality reached by the assessment under Rule 17(1) of the amended Madras General Sales Tax Rules, 1939.

49. On this view it is necessary to discuss elaborately whether the rule 14(2) framed under the rule making powers given under Section 19 of the Act IX of 1939 is ‘intra vires’ or ‘ultra vires’. I have no doubt in my mind that rule 14(2) is ‘intra vires’ of the rule making powers of the State under Section 19 of the Act. Section 19(1) enables the Provincial Government to make rules to carry out the purpose of the Act and

“in particular and without prejudice to the generality of the foregoing power, such rules may provide for any other matter for which there is no provision or no sufficient provision in this Act and for which provision is in the opinion of the Provincial Government, necessary for giving effect to the purposes of this Act.”

50. The enactment giving power to make rules and other powers are subject to two limitations. First of all, authority so given cannot be delegated with which we are not concerned here. Secondly, the rules made in pursuance of a delegated authority to that effect must be consistent with the Statute under which they came to be made.

51. The authority is given to the end that the provisions of the statute may be better carried out into effect and not with a view to neutralising or contradicting those provisions. This is especially so in the case of the Madras General Sales Tax Act because in almost in all the States that have imposed this tax it has been adopted as an emergency measure enacted in a hasty search for new revenue.

52. Loose drafting has always left something to be desired; and much has been left for the rules to supplement: Haig Shup Sales Tax in American States, page 24.

53. The purposes of this Act are twofold viz. the levy of a general tax on the sale of goods to supplement the lost revenues and for promoting the general public good; and secondly, to see that this is done under the provisions of the Act and not by carrying out in a capricious or arbitrary manner.

54. Therefore, a revisional authority has to be created. What is revision? The I essence of revisional jurisdiction lies in the duty of the superior tribunal or officer entrusted with such jurisdiction to see that the subordinate tribunals or officers keep themselves within the bounds prescribed by law and that they do what their duty requires them to do and that they do it in a legal manner.

55. This jurisdiction being one of superintendence and correction in appropriate cases, it is exercisable even ‘suo moto’ as is clear from the numerous statutory provisions relating to revision found in various Act and Regulations such as the Civil Procedure Code, Criminal Procedure Code, Income-tax Act, etc. The jurisdiction of ‘suo motu’ revision is not cribbed and cabined or confined by conditions and qualifications.

56. The purpose of such an amplitude being given ‘suo motu’ revisions appears to be as much to safeguard the interests of the exchequer as in the interests of the assessee. The State can never be the appellant and if there is an order against the State to its prejudice, and naturally the assessee in whose favour the order is passed does not prefer an appeal, the State would suffer unless its interests are safeguarded by the exercise of such supervisory jurisdiction as the one given to the authorities above-mentioned.

57. So when, this revisional jurisdiction has been conferred upon the Board of Revenue under Section 12 and when extensive rule making powers have been granted to the Government under Section 19 and when as a result of the practical working of the Act the Government have found that to safeguard the interests of the exchequer as well as the interest of the assessee, rule 14(2) should be enacted in order to make good the want of sufficient provision in the Act for giving effect to the purpose of this Act, it cannot be said that this is not ‘intra vires’ of the rule making powers conferred by Section 19 of the Act.

58. But for reasons already stated I have to hold that in regard to the assessment of 1945-1946 by reason of the one year period prescribed under rule 17(1) of the unamended Act the Commercial Tax Officer was not justified in invoking his revisional powers and reopening the assessment, albeit for a legitimate reason viz. that a portion of the turnover had been wrongly exempted from assessment.

59. The learned Government Pleader wants to get over this impediment by confining the phrase “turnover of business of a dealer has escaped assessment” to mistakes of omission only. But “escaped assessment” cannot be confined to mistakes of omission only. It is instructive to study the expositions of this phrase as arising under Section 34 of the Indian Income-tax. Act in the standard treatise:

60. Sri V.S Sundaram Law of Income-tax in India, Seventh Edition (1954) p. 959: The words in the second alternative “assessed at too low a rate” in Section 34(2) of the Income-tax Act (Indian) show that the escape need not necessarily be due to inadvertence. It is therefore open to an Income-tax Officer to reopen an assessment deliberately wrongly made: — ‘Commr. of Income-tax, Madras v. Sri Krishna Chandra Gajapati Narayan Deo’, AIR 1926 Mad 287 (Z8).

61. The Madras view was endorsed by the Calcutta High Court in — ‘Anglo-Persian Oil Co. v. Commissioner of Income-tax’, AIR 1933 Cal 777 (Z9) but not by the Lahore High Court who held that income known or disclosed to the authorities cannot be said to have “escaped” assessment. The word ‘escape’ connotes failure by the taxing, authority to tax the income owing to accidental or deliberate omission of the assessee to declare it or to some similar circumstances.

62. It does not, according to the Lahore view, include cases where income is known or disclosed to the taxing authorities and has been the subject of assessment which has been set aside by superior authority owing to some mistake in procedure or to the income being treated in a wrong category; — ‘Diwan Kishan Kishore v. Commissioner of Income-tax, Punjab’, AIR 1933 Lah 284 (Z10).

63. In a later case, the same High Court after reviewing all the rulings decided that in view of the words “for any reason” occurring before the words “escaped assessment” the interpretation-placed by the Calcutta and the Madras High Courts was the more correct one: — ‘Amar Singh Sher Singh v. Commissioner of Income-tax, Punjab’, AIR 1935 Lah 361 (Z11). The words “have been under-assessed” now occurring in the section obviate these difficulties.

64. Messrs Kanga and Palkhivala's Income-tax Act, 2nd Edition, pages 748-749: Income is said to have escaped assessment within the meaning of section 34(1) when it has ‘not’ been charged in the hands of the ‘assessee’ in the ‘proper’ assessment year; it is immaterial that the income was charged or included in some other assessment, — ‘Commissioner of Income-tax v. Ved Nath Singh’, AIR 1940 Rang 65 (Z12); or that the failure to charge the income was entirely due to oversight or inadvertence on the part of the Income-tax authorities: — ‘The State Of Bihar v. Sir Kameshwar Singh Bahadur…Opposite Party.’, AIR 1952 Pat 417 (Z13).

65. Income shown in return: Section 34(1) is not confined to cases where income has not been returned at all. It also covers cases where an item of income is included in the return made by the assessee but is left unassessed by Income-tax Officer:— ‘Madan Mohan Lal v. Commissioner of Income-tax, Punjab and NWPF, AIR 1935 Lah 742 (Z14) explaining — ‘Rajendranath Mookerjee v. Commissioner of Income-tax, Bengal’, AIR 1934 PC 30 (Z15); — ‘Nawal Kishore Kharaiti Lal v. Commissioner of Income-tax, Punjab and NWPP’, AIR 1936 Lah 897 (Z16); — ‘Province of Bihar v. Khetro Mohan Kumars’, AIR 1949 Pat 418 (Z17). Contra — ‘Maharaja Bikram Kishore of Trinura v. Province of Assam’, 1949-17 ITR 220 (Cal) (Z18).

66. Sri A.C Sampath Ayyangar's The Indian Income-tax Act, 4th Edition, pages 918 to 920:— “Escaped assessment”: This may happen in one of several ways. One very common way is where the Income-tax Officer being unaware of the existence of the assessee completely misses him and takes no steps at all to assess……

67. A second case is where the Income-tax Officer being aware of the existence of the assessee and in proceeding to assess, fails to take the requisite preliminary steps and hence the assessment is annulled …. A third case would be where the particular Income-tax Officer who has made the assessment is found to have no jurisdiction over the assessee in question and therefore a Court of Law annuls the assessment…

68. In all the above cases, there is a total escape of the assessee from assessment. There is another sense also in which “escaped assessment” might be said to arise; and that it where one entire source of income or one entire head out of the several heads of income of the assessee has escaped assessment.

69. Income under-assessed: In the absence of such a language as this in the Act before 1939, arguments were being advanced that if a particular source of income was assessed in fact, but was not fully assessed, there was no “escaped assessment”. It had to be held to meet that argument, that to the extent to which full tax was not levied or the full income was not brought to charge, there was, ‘quoad’ such income, an escape, though really it was a case of under-assessment.

70. To remedy the defect, definite language was Introduced to include cases of under-assessment”. A fourth instance would be where an income is deliberately exempted from charge by the Income-tax Officer on a certain view of the law which he takes, which happens to be incorrect”. Cf. — ‘Commissioner of Income-tax, Bombay v. D.R Naik’, AIR 1939 Bom 362 (Z19). On the basis that a sole surviving male member of a joint family continued to be the manager thereof, a deduction of Rs. 75,000/- was granted for super-tax, the deduction permissible to an individual being only Rs. 30,000.

71. After the decision of the Privy Council in the cases of — ‘Kalyani Vithal Das v. Commissioner of Income-tax, Bengal’, AIR 1937 PC 36 (Z20) and — ‘Commissioner of Income-tax, Bombay v. Swami Gomedalli Lakshmi Narain’, AIR 1937 PC 239 (Z21) pointing out the law that the manager should be assessed only as an individual, the Income-tax Officer sought to assess the difference of Rs. 45,000/- to super-tax.

72. Held proper Perhaps the decision could be justified on the ground of a mistake on facts. In that case, it was only by enquiries made after the first assessment that the Income-tax Officer came to know that the assessee was the sole surviving male member. In that view the decision would be correct also under the present Act.

73. See also 1949-17 ITR 220 (Cal) (Z18): Assessee exempted from agricultural Income-tax, accepting his contention that his income was agricultural. Subsequently reassessed by fresh notice calling for return.

74. Similarly, interesting is the study of the phrase “discovers” under Section 41 of the English Income-tax Act, 1952: Simon's Income-tax Act, 2nd Edition, Vol. 4, page 72).

75. In Konstam's Income-tax Act (12th Edition, Sweet & Maxwell) the following commentary is found: If the inspector ‘discovers’ that in the assessments made any properties or profits chargeable to tax have been omitted, that any person has not been assessed, or has been undercharged, or has obtained any unauthorised allowance, deduction or relief, or that any person has not made a return, or has not made a full return, an ‘additional first assessment’ is to be made…

76. The word ‘discover’ simply means ‘find out’, and the power to make an additional assessment is applicable even though there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based lathe first instance, and whether it is an error of fact or error of law that has been discovered: — ‘Inland Revenue Commissioners v. Mackinlay's trustees’, 1938 SC 765 (Z22); — ‘Commercial Structures Ltd. v. Briggs’, (1948) 2 All ER 1041 (Z23); See also — ‘Vestey’, (1946) 25 ATC 385 (Z24).

77. The mere discovery of his own oversight enables the inspector to make an additional assessment: — ‘Steel Barrel & Co. Ltd. v. Osborne’, (1947) 26 ATC 437 (Z25). The fact that there-has been an appeal against the original assessment does not prevent an additional assessment:— ‘Anderton and Halstead Ltd. v. Birrell’, (1932) 1 KB 271 (Z26), (For similar comments see Simon's Income-tax Act, 2 Edi. Vol. I, page 263).

78. In the result, looked at from the point of view of Cl. (1) or (2) of R. 17 of the Sales Tax Rules, the assessment of 1945-1946 cannot be-disturbed beyond the period of one year prescribed under the Sales Tax Rules of 1939.

79. Turning to the assessment for 1946-1947., the legality or propriety of that order cannot be impeached. The Madras General Sales Tax Act as amended by Act 25 of 1947, confers revisional powers of jurisdiction under R. 14 and R., 17 enables the reopening of the closed assessment within a period of three years. In this case the revised assessment had been levied within a period of three years. Therefore, in regard to the assessment of 1946-1947 there can be no interference.

80. Point 3: In regard to deductions in the light of the recent decisions in — ‘State of Madias v. Hajee M.S.A Meeran Sahib Co.’, 1954-5 STC 71 at pp. 79-80 (Z27); — ‘State of Madras v. Ralli Bros. Ltd., Madras’, AIR 1955 Mad 251 (Z28); — ‘State Of Madras v. Messrs. N.R. Kuppuswami Gounder’, AIR 1954 Mad 784 (Z29); and — ‘State of Madras v. Ramakrishna Rice and Oil Mills’, AIR 1954 Mad 891 (Z30), it has to be held that the right to deduction in favour of the registered manufacturer of groundnut oil is an absolute right under R. 18(2) of the Turnover Rules and hence these deductions have to be 1 allowed.

81. But the actual figures cannot be worked out by us and therefore in regard to deductions, this is remitted to the Commercial Tax Officer for making the computation and allowing the deductions and giving the refund to the assessee.

82. In regard to the rebate, the plaintiff is certainly not entitled to the same by reason of the language of S. 7. It is quite true that groundnut, oil is a finished article and industrial manufacturers of vegetable oils have been notified by the Provincial Government to be entitled to rebate.

83. But this rebate can be allowed only on sales of such articles for delivery outside the Province I and if such articles are actually so delivered. In this case I have already discussed and shown how, so far as plaintiffs are concerned, the sales were made inside the Province and ex-mill viz., delivery at the factory.

84. The fact that the various purchasers of this groundnut oil purchased them for delivery outside the Province and then actually so delivered them-is neither here nor there. It is not those purchasers who are claiming the rebate but the plaintiffs who sold the articles inside Madras State and delivered them inside Madras State and thereby completed their transactions and became only the bailees and sellers with a lien for unpaid purchase price in regard to all that transpired thereafter.

85. In the result I find in O.S 111 of 1951 under issue 1 that the Commercial Tax Officer is entitled to re-open and revise the assessment of the sales-tax on the turnover of Rs. 14,10,234/1/0 for the year 1946-47; under issue 2 that the plaintiff is entitled to deduction but not rebate; under issue 3 that the sale of groundnut oil was not outside the Province as alleged by the plaintiff; under issue 4 that the Commercial Tax Officer had jurisdiction to exercise the powers under Section 12 of the Act and R. 14 of the General Sales Tax Rules and he has conformed to R. 17(1) in treating the assessment as escaped assessment; and under issue 5 that the relief to which the plaintiff is entitled is a decree regarding deduction only and dismissal regarding the rest of the claim. The parties will take and give costs in the measure in which they have succeeded and failed. I certify for two counsel. In C.S No. 112 of 1951 I find under issue 1 that the Commercial Tax Officer is not entitled to re-open and revise the assessment of the sales tax on the turnover, of Rs. 18,29,578-4-1 of the plaintiff for the year 1945-1946; under issue 2 that it does not arise; under issue 3 that the sale of groundnut oil was not outside the Province as alleged by the plaintiff; under issue 4 that the Commercial Tax Officer had jurisdiction to exercise revisional powers under Section 12 of the Act and R. 14 of the General Sales Tax Rules and has not conformed to R. 17(1) in treating the assessment as escaped assessment and under issue 5 that the plaintiff is entitled to the decree as asked for with costs. I certify for two counsel.

V.S.B

86. Order accordingly.