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N. Kuppana Gounder v. The Appellate Assistant Commissioner (C.T), Salem, And Another
Factual and Procedural Background
For the assessment year 1966-67 the Deputy Commercial Tax Officer, Erode (Rural) assessed the petitioner’s total turnover at Rs. 32,65,157.57 and taxable turnover at Rs. 7,79,293.69. The petitioner appealed to the Appellate Assistant Commissioner, Commercial Taxes, Erode. By order dated 15 December 1967 the appellate authority fixed the total and taxable turnovers at Rs. 32,06,520.39 and Rs. 7,14,144.43 respectively. The appellate order included within taxable turnover the purchase turnover of locally purchased raw hides and skins amounting to Rs. 2,80,149.12. The petitioner’s case is that those raw hides and skins were dressed and sold during the year and, on the basis of the statutory schedule (item 7(b) of the Second Schedule to the Act), should have been taxed differently.
The petitioner did not raise that specific contention before the Appellate Assistant Commissioner. After a decision of this court in Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes ([1969] 24 S.T.C. 468) was rendered, the petitioner filed an application for rectification on 3 October 1969 seeking relief in the light of that decision. On 23 October 1969 the Appellate Assistant Commissioner (Salem) returned the representation with an endorsement to the effect that the appellate order had been passed long before the judgment referred to and hence revision under Section 55 did not arise.
Two writ petitions followed: W.P. No. 153 of 1970 seeking a writ of mandamus directing the 1st respondent to entertain the representation as an application for rectification under Section 55 of the Act; and W.P. No. 152 of 1970 seeking removal of the returning endorsement on the ground it poses an error apparent.
Legal Issues Presented
- Whether the 1st respondent was obliged to entertain and deal with the petitioner’s representation dated 3 October 1969 as an application for rectification under Section 55 of the Tamil Nadu General Sales Tax Act, in view of a subsequent judicial decision (Sadak Thamby & Co.).
- What is the scope of the rectification power under Section 55 — whether the enabling word "may" may, in circumstances, translate into a duty to rectify where an error apparent on the face of the record or an illegal levy (including by reason of subsequent judicial pronouncement) is brought to notice.
- Whether a judicial pronouncement rendered after the conclusion of proceedings before statutory authorities can form a foundation for seeking rectification of an assessment order under the rectification provisions.
Arguments of the Parties
Petitioner's Arguments
- When the original and appellate orders were made there was no clear judicial pronouncement on the taxation treatment of raw hides and skins versus dressed hides and skins; that position was clarified by this Court’s decision in Sadak Thamby & Co. on 18 April 1969.
- Any levy contrary to the principle laid down in Sadak Thamby & Co. is illegal; consequently the petitioner has a right to have the appellate authority entertain an application for rectification based on that subsequent judicial pronouncement so as to avoid an illegal tax collection.
- The power to rectify vested in statutory authorities should not be treated as a mere discretionary power exercised lightly; where circumstances demand correction to render justice, that power ought to be seen as mandatory (i.e., "may" to be read as "shall").
Respondent's Arguments (Government Pleader)
- Factually, the petitioner did not inform the appellate or original authority that during the accounting year raw hides and skins were converted into dressed hides and skins; therefore the treatment of the turnover as raw hides and skins under item 7(a) is not shown to be illegal on the basis of the record.
- No such material demonstrating conversion was furnished even in the rectification application.
- A judicial pronouncement rendered after conclusion of proceedings before the statutory authorities may not, by itself, be a ground "perceivable" for exercise of power under Section 55. The rectification power is confined to correcting an "error apparent on the face of the record"; absent such an error the assumption of rectification power is not warranted and returning the representation was justified.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes [1969] 24 S.T.C. 468 | Established the correct approach/formula for taxation treatment of raw hides and skins and dressed hides and skins (position later relied upon by the petitioner). | The court held that the petitioner should be allowed to place material in accordance with the formula and data laid down in this decision, and directed the 1st respondent to take the rectification application on file and deal with it in accordance with the principles indicated in this judgment. |
| I. Hirday Narain v. Income Tax Officer, Bareilly [1970] 78 I.T.R. 26 (S.C.) | Explains that the power to rectify an error apparent from the record is in aid of enforcement of a right and to avoid injustice; that such power is entrusted to quasi-judicial authorities to ensure justice and may require exercise when a mistake apparent from the record is brought to notice. | The court invoked the passage quoted from this Supreme Court decision to support the proposition that the rectification power is not merely discretionary in the loose sense and may have to be exercised to avoid injustice to the assessee or the revenue. |
| Julius v. Bishop of Oxford (1880) 5 App. Cas. 214 (H.L.) (passage of Lord Chancellor Cairns quoted) | Quoted for the principle that power to rectify in aid of enforcement of a right is to ensure injustice may be avoided; supports view of rectification power's purpose. | The passage was quoted (via the Supreme Court’s reference in I. Hirday Narain) to underline the nature and purpose of rectification powers — to do justice when mistake apparent from the record is shown. |
| S. A. L. Narayana Row, Commissioner of Income-tax v. Model Mills Nagpur Ltd. [1967] 64 I.T.R. 67 (S.C.) | Considered the scope of rectification power under Section 35 of the Income-tax Act and bears on whether subsequent judicial decisions can justify rectification of prior orders. | The court relied on this decision to reject the earlier view that supervening judicial judgments cannot, by themselves, form the foundation for rectification; it used the case to support the proposition that a subsequent judicial pronouncement rendering a levy illegal can justify rectification. |
| Khatau Makanji Spinning & Weaving Co. Ltd. v. Commissioner of Income-tax [1956] 30 I.T.R. 841 (Bombay High Court) | The Bombay High Court held that a levy of additional tax on excess dividends was illegal. | The court’s description of subsequent events (including the High Court decision and the Supreme Court confirmation) was used to illustrate that when a levy is found illegal by judicial pronouncement, rectification and refund were appropriate—supporting the present petitioner’s position. |
| Commissioner of Income-tax v. Khatau Makanji Spinning & Weaving Co. Ltd. [1960] 40 I.T.R. 189 (S.C.) | The Supreme Court confirmed the Bombay High Court’s view that the levy was illegal. | The Supreme Court’s confirmation established the illegality of the levy and, as recounted by the present court, provided authoritative support for directing rectification/refund when a judicial decision shows a prior collection to have been illegal. |
Court's Reasoning and Analysis
The court began by addressing the scope of the rectification power under Sub-section (1) of Section 55 of the Tamil Nadu General Sales Tax Act. It noted that Section 55 permits the assessing, appellate or revisional authority (including the Appellate Tribunal) to rectify any "error apparent on the face of the record" within the prescribed time. Having found the application was made in time, the court focused on the meaning and scope of "error apparent on the face of the record."
The court emphasized that the expression must be understood in context and that authorities should not lightly disregard requests for rectification without addressing the representations. Although the provision uses the enabling verb "may," the court held that the statutory power cannot be equated to an arbitrary discretionary power exercised according to whim. Where circumstances exist that justify exercise of the power (particularly to avoid injustice in taxation), the obligation to act may be mandatory in effect — the "may" in the statute should be read as "shall" in such situations. To support this view the court relied on the Supreme Court’s reasoning in I. Hirday Narain v. Income Tax Officer, Bareilly and the passage of Lord Chancellor Cairns quoted therein, stressing that rectification is conferred to ensure that injustice to the assessee or the revenue may be avoided.
The court then considered whether a judicial pronouncement delivered after the original or appellate order but before a rectification application can justify rectification. It recognized that an earlier view of this court had been restrictive on this point but observed that the Supreme Court’s decision in S. A. L. Narayana Row v. Model Mills Nagpur Ltd. made it difficult to maintain that view. The court reviewed the facts and subsequent decisions in the Khatau Makanji line of cases to illustrate that where a levy is found illegal by judicial decision, rectification and refund are appropriate.
Applying these principles to the present facts, the court concluded that the petitioner’s rectification application dated 3 October 1969 (filed after this Court’s decision in Sadak Thamby & Co.) ought to have been entertained by the 1st respondent. The appellate authority’s return of the representation without entertaining it amounted to an avoidance of public duty because the authority was obliged in law to entertain and deal with the application so as to render justice and avoid an illegal assessment if established.
Finally, the court differentiated the two writ petitions: W.P. No. 153 required judicial relief because of the failure to exercise the rectification power, whereas W.P. No. 152 merely challenged an administrative endorsement (not a quasi-judicial order) and therefore did not merit the same relief.
Holding and Implications
Holding: Writ Petition No. 153 of 1970 is ALLOWED. Writ Petition No. 152 of 1970 is DISMISSED.
Implications and direct effects:
- The 1st respondent is directed to take on file the petitioner’s application for rectification dated 3 October 1969 and to deal with it in accordance with the principles indicated in this judgment and in Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes ([1969] 24 S.T.C. 468).
- The petitioner is required to place on record such material as fits the formula and data laid down by this Court in Sadak Thamby & Co. and to satisfy the authorities that the earlier appellate order resulted in an illegal levy. The relief directed is procedural — the court has required the authority to entertain and consider the rectification application, not to make a specific final adjustment itself.
- No order as to costs was made in either writ petition.
- No broader new legal precedent beyond the application of cited authority was proclaimed; the judgment applies established principles (as discussed) to require the authority to entertain a rectification application where a subsequent judicial decision raises the prospect of an illegal levy.
This summary is based exclusively on the content of the provided opinion. No information beyond the text of the opinion has been added.
1. For the assessment year 1966-67, the Deputy Commercial Tax Officer, Erode (Rural), determined the total and taxable turnovers of the petitioner at Rs. 32,65,157.57 and Rs. 7,79,293.69 respectively. The petitioner took up the matter in appeal before the Appellate Assistant Commissioner, Commercial Taxes, Erode, challenging certain additions and effectually complaining against the original order of assessment. The Appellate Assistant Commissioner passed an order on 15th December, 1967, determining the total and taxable turnovers at Rs. 32,06,520.39 and Rs. 7,14,144.43 respectively. The case of the petitioner is that the said taxable turnover, as is seen from the appellate order, includes the purchase turnover of raw hides and skins effected locally amounting to Rs. 2,80,149.12. His case is that during the year in question the raw hides and skins so purchased by him and which was subject to tax in accordance with the provisions of the Tamil Nadu General Sales Tax Act, were dressed and sold during the year in question and all such sales of dressed skins effected, but from and out of the pool of raw hides and skins brought to tax under the impugned order, are to be taxed differently under item 7(b) of the Second Schedule to the Act. It is common ground that this contention was not raised by the petitioner before the Appellate Assistant Commissioner. Therefore, the appellate authority concluded the appeal by including the entire purchase turnover of raw hides and skins in the assessable turnover and brought them to tax under item 7(a) of the Second Schedule to the Act. The petitioner, after coming to know of a decision of this court in Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes [1969] 24 S.T.C. 468, on which ratio apparently he based his further representations for rectification of the appellate order, filed before the appellate authority an application for rectification on 3rd October, 1969. On 23rd October, 1969, the Appellate Assistant Commissioner, Salem, returned the representation with the following endorsement :
The appellate order was passed on 15th December, 1967, that is, long before the judgment referred to above, was pronounced. Hence the question of revision under Section 55 does not arise.
2. It is as against this order, the present writ petitions are filed.
3. W.P. No. 153 of 1970 is for the issue of a writ of mandamus directing the 1st respondent to entertain the representation and deal with it as an application for rectification under Section 55 of the Act. W.P. No. 152 of 1970 is for removal of the said order on the ground that it poses an error apparent.
4. The main contention of the learned counsel for the petitioner is that when the original order was made and even so when the appellate authority decided and concluded the appeal, there was no judicial pronouncement which clearly laid down the modus operandi under which raw hides and skins and dressed hides and skins should be taxed. According to the petitioner, it was only in the decision returned by this court on 18th April, 1969, in Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes [1969] 24 S.T.C. 468, the position has been made clear. He further urges that by reason of the judicial pronouncement as above, any levy contrary to the principle laid down in the said decision is illegal and as no authority can impose or collect taxes illegally, the petitioner has a right and the 1st respondent is bound legally and publicly to enquire into an application for rectification founded on such situations. One other argument that is pressed into service is that the power to rectify, which is ordinarily vested by statutes in Tribunals, ought not to be lightly equated to a discretionary power, but it ought to be understood as one vested in such authorities so as to render justice at all times. The learned Government Pleader, however, would say that factually the petitioner did not bring to the notice of the appellate authority or the original authority that during the accounting year he converted raw hides and skins into dressed hides and skins and, therefore, the levy of a tax treating the goods as raw hides and skins under item 7(a) of the Second Schedule to the Act is not illegal. He would also state that even in the application for rectification filed by the petitioner no such material has been furnished. Secondly, he would argue that a judicial pronouncement by a competent court, after the conclusion of proceedings before the statutory authorities may not tilt the matter because that cannot be said to be a ground which is perceivable in the exercise of power under Section 55 of the Act. According to the learned Government Pleader, such a power is exercisable only if there is an error apparent in the record and, in the absence of such an error, the assumption of such a power is not warranted and hence the impugned order is justified.
5. I shall now take up the second contention of the learned Government Pleader on the scope of the power of rectification. Section 55 authorises the assessing authority or the appellate or revisional authority (including the Appellate Tribunal) to rectify any error apparent on the face of the record, but within the time prescribed in Sub-section (1) of Section 55. In the instant case, the application has been made in time. The question is as to what is an error apparent on the face of the record. The expression "error apparent on the face of the record" appears in various statutes including the Constitution of India. But the expression has to be understood in the context in which it is used and its interpretation varies according to the force and import of such context. In a case where a rectification is sought, it is not for the authorities to lightly discountenance such a request without giving any reason or without adverting to the representations made by the aggrieved party seeking for rectification. Though the verb used in Section 55 is "may" and therefore enabling, yet the power vested by the statute on the appropriate authority cannot be always equated to a discretionary power or a power which could be exercised according to the whims and fancies of such a statutory authority. If circumstances do exist for the exercise of power, it ceases to be a discretionary power but transforms itself into a mandate by statute to exercise that power in public interest and particularly for the avoidance of injustice in taxation matters. A subject cannot be lightly burdened with a tax if he can legally and lawfully avoid it. and particularly by having recourse to the specified statutory authorities requesting them to rectify an error so as to avoid an illegal assessment; then it cannot be said that even in such a situation the word "may" has to be understood as "may"; on the other hand, it should be understood as "shall". It is this view which reflects in the judgment of the Supreme Court in I. Hirday Narain v. Income Tax Officer, Bareilly† . [1970] 78 I.T.R. 26 (S.C.). Quoting the well-known passage of Lord Chancellor Cairns in Julius v. Bishop of Oxford (1880) 5 App. Cas. 214 (H.L.), the Supreme Court said that "exercise of power to rectify an error apparent from the record is conferred upon the Incometax Officer in aid of enforcement of a right. The Income-tax Officer is an officer concerned with assessment and collection of revenue and the power to rectify the order of assessment conferred upon him is to ensure that injustice to the assessee or to the revenue may be avoided. It is implicit in the nature of the power and its entrustment to the authority invested with quasi-judicial functions under the Act, that to do justice it shall be exercised when a mistake apparent from the record is brought to his notice by a person concerned with or interested in the proceeding.
6. If, therefore, the power vested in the authorities in Sub-section (1) of Section 55 is not always a discretionary power, but is normally to be understood as a duty with which the concerned authority is enjoined, then the next question is when shall the power be exercised. The learned Government Pleader would say that the interception of a judicial pronouncement between the concluded appellate, original or revisional order and the memorandum for rectification would not enable the authorities, even though bound to do so, to exercise such a power. Here again there is a fallacy. Of course, at one time this court took the view that such supervening judgments of courts, whether of the High Court or the Supreme Court, cannot by themselves form the foundation for the exercise of power to rectify an assessment order when the appropriate authority is asked to do so. But, in view of the decision in S. A. L. Narayana Row, Commissioner of Income-tax v. Model Mills Nagpur Ltd. [1967] 64 I.T.R. 67 (S.C.), it is difficult to hold that view. The Supreme Court in that case was considering the scope of the power of rectification vested in the Income-tax Officer under Section 35 of the Income-tax Act. The short facts are : The respondent-company was subjected to, among other things, pay an additional tax on the excess dividends declared by it. The order was complied with. Thereafter, in Khatau Makanji Spinning & Weaving Co. Ltd. v. Commissioner of Income-tax [1956] 30 I.T.R. 841, the Bombay High Court held that the levy of tax on excess dividends was illegal. The view of the Bombay High Court was confirmed by the Supreme Court in Commissioner of Income-tax v. Khatau Makanji Spinning & Weaving Co. Ltd. [1960] 40 I.T.R. 189 (S.C.). Soon after the Bombay High Court rendered the above judgment, the respondent-company applied to the Income-tax Officer for refund of the tax paid and incidentally sought for a rectification of the original order. This was negatived by the Income-tax Officer as well as the Commissioner of Income-tax in revision. The Bombay High Court, however, on an application made to it under Article 226 of the Constitution directed the Income-tax Officer to revise the order in the light of the judgment in Khatau Makanji Spinning & Weaving Co. Ltd. v. Commissioner of Income-tax [1956]30I.T.R. 841. The department took up the matter in appeal to the Supreme Court. The learned Judges said:
There is no doubt that, in view of the judgment of this court in Commissioner of Income-tax v. Khatau Makanji Spinning & Weaving Co. Ltd. [1960] 40 I.T.R. 189 (S.C.), the levy of an additional tax was illegal.... The High Court was right in making the order directing the Commissioner to refund the amount of tax which was illegally collected.
7. This decision is, therefore, authority for the proposition that if a levy is found to be illegal or becomes illegal by reason of a subsequent decision of the court, even the exercise of power by an authority under the provisions governing the rectification of assessments is justified and legal. In the light of this, the application for rectification made on 3rd October, 1969, by the petitioner ought to have been entertained by the 1st respondent and he should have dealt with it in accordance with law and, in particular, in accordance with the principles laid down in Sadak Thamby & Co, v. Appellate Assistant Commissioner of Commercial Taxses [1969] 24 S.T.C. 468. This has not been done. On the other hand, the application for rectification has been returned without being entertained. There is, therefore, an avoidance of public duty on the part of the 1st respondent when he was obliged in law not only to entertain the same but also deal with it so as to render justice and avoid injustice. In this view of the matter, Writ Petition No. 153 of 1970 is allowed.
8. No particular orders are necessary in W.P. No. 152 of 1970 because, the order challenged is only an administrative order and not an order passed by the 1st respondent as a quasi-judicial Tribunal. W.P. No'. 152 of 1970 is, therefore, dismissed. There will be no order as to costs in both the writ petitions.
9. It is for the petitioner to place such material as would fit in with the formula and the data laid down by this court in Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes [1969] 24 S.T.C. 468 and satisfy the authorities that the earlier appellate order has resulted in an illegal levy. For this purpose the 1st respondent is directed to take on file the application for rectification dated 3rd October, 1969 and deal with it in accordance with the principles indicated in this judgment and in Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes [1969] 24 S.T.C. 468.
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