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Gujarat Steel Tubes Ltd. v. Sales Tax Officer (I), Ahmedabad
Structured Summary of the Provided Opinion
Factual and Procedural Background
The petitioner is a manufacturer of steel tubes with its registered office at Ahmedabad. The petitioner filed quarterly returns of taxable turnover under the Gujarat Sales Tax Act, 1969 and the Central Sales Tax Act, 1956. From 1 July 1982 until the filing of the petition on 26 March 1992, the petitioner did not receive assessment orders and assessments for the years 1982-83 to 1988-89 remained pending.
On 20 February 1992 the Sales Tax Officer (I), Ahmedabad (respondent No. 1), issued notices proposing to proceed with assessments for the periods 1982-83 to 1988-89. The petitioner challenged those notices on the ground that assessments for several of those years had become time-barred under section 42 of the Gujarat Sales Tax Act, 1969 (as in force at the relevant time). The petitioner also relied on the contention that two stay orders (one dated 30 December 1987 for 1983-84, and another purporting to stay proceedings for 1982–85) had been made without compliance with rule 37-A (no show cause notice, no recorded reasons) and without the petitioner's consent.
At the hearing the petitioner did not press challenge to the notice for 1988-89. The Court examined the validity of the two stay orders annexed to the petition and the impugned notices dated 20 February 1992 for assessment periods 1982-83 to 1987-88, and ultimately set aside the two stay orders and those impugned notices. The Court made the rule absolute and observed that the respondent-authority remained free to take such action as permissible under law.
Legal Issues Presented
- Whether assessment orders for the years 1982-83 to 1988-89 could be lawfully made in view of the limitation period prescribed by section 42 of the Gujarat Sales Tax Act, 1969 (as in force at the relevant time).
- Whether the proviso to section 42 permitting the Commissioner to stay assessment proceedings (and the mechanism provided by rule 37-A) was validly invoked in the two stay orders relied upon by the respondent.
- Whether stay orders issued without issuing a show cause notice under rule 37-A, and without recording reasons and circumstances necessitating the stay, could extend the period of limitation for making assessments.
- Whether the notices dated 20 February 1992 issued by the Sales Tax Officer for the assessment years 1982-83 to 1988-89 were sustainable in law, given the above issues.
Arguments of the Parties
Petitioner's Arguments
- The assessments for the years 1982-83 to 1988-89 had become time-barred under section 42 because assessment orders required to be passed within two years from the end of the year in which the last return was filed, and that limitation had expired for the relevant years.
- Only two stay orders (one for 1983-84 and one for 1982–85) were issued and those were made without issuing the show cause notice required by rule 37-A and without hearing the petitioner; for 1982-83 no stay order was made and that assessment year had become time-barred.
- The stay orders were issued without recording any reasons or circumstances necessitating the stay, and improperly stated that the petitioner had consented to waiving a show cause notice—an assertion the petitioner denied and which was not supported by contemporaneous records.
- The respondent's reliance on PAG Precision Bearing Limited v. Sales Tax Officer [1993] 90 STC 294 (as set out in paragraph 5 of the respondent's affidavit-in-reply) was misconceived because that decision had been reversed by the Supreme Court in FAG Precision Bearings v. Sales Tax Officer (I) [1997] 104 STC 143.
Respondent's Arguments
- The affidavit-in-reply relied on the decision of this Court in PAG Precision Bearing Limited v. Sales Tax Officer [1993] 90 STC 294 (as noted in the opinion); the respondent therefore sought to justify the stay orders and continuation of assessment proceedings on the basis of that authority.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| PAG Precision Bearing Limited v. Sales Tax Officer [1993] 90 STC 294 | Relied upon by the respondent-authority in its affidavit-in-reply to support stay/continuation of proceedings. | The Court noted that the respondent relied on this decision, but also observed that that decision had been reversed by the Supreme Court and therefore reliance on PAG was misconceived in light of the later Supreme Court authority. |
| FAG Precision Bearings v. Sales Tax Officer (I) [1997] 104 STC 143 (Supreme Court) | Held that the power to stay assessment proceedings under the proviso to section 42/read with rule 37-A can be exercised only in extraordinary circumstances and for supervening reasons not attributable to default of assessing authorities; requirement of issuing notice under rule 37-A and recording reasons is a matter of natural justice. | The Court applied the Supreme Court's pronouncement in FAG to the facts: it held that mere pendency of proceedings is not a ground for stay, that the stay power requires notice and written reasons under rule 37-A, and therefore the two printed stay orders (which lacked reasons and any show cause notice) could not be sustained and did not extend the limitation period for assessment. |
Court's Reasoning and Analysis
The Court began by identifying the statutory limitation under section 42 of the Gujarat Sales Tax Act, 1969 as it stood at the relevant time: assessment orders under section 41(3) or 41(4) could not be made after the expiry of two years from the end of the year in which the last return was filed, unless assessment proceedings were stayed under the proviso to section 42 by a general or special order by the authority concerned.
The Court analyzed the proviso to section 42 together with rule 37-A(2) of the State Rules, which required the Commissioner to reduce in writing the reasons and circumstances necessitating a stay. It relied on the Supreme Court's decision in FAG Precision Bearings [1997] 104 STC 143 for the legal proposition that:
- The power to stay assessment proceedings is to be exercised only in extraordinary circumstances and for supervening reasons not attributable to the default of assessing authorities;
- Mere pendency of assessment proceedings is not a sufficient ground for granting a stay;
- Because a stay has civil consequences for an assessee (e.g., degradation of evidence, difficulty proving accounts, claiming set-offs), natural justice requires that the assessee be given notice under rule 37-A to show cause why proceedings should not be stayed and that the reasons and circumstances for the stay be recorded in writing.
Applying these principles to the facts, the Court closely scrutinized the two stay orders (annexure "A"). It found that:
- Neither order recorded any reasons or circumstances that necessitated a stay;
- Both orders merely assumed that the assessee had consented to waiving a show cause notice; the orders were printed forms with blanks filled in and there was no contemporaneous record of any actual consent;
- No show cause notice under rule 37-A had been issued in respect of the years in question;
- Accordingly, the orders did not satisfy the requirements of rule 37-A and the principles laid down in FAG, and thus could not operate to extend the statutory limitation for assessments.
Because the two stay orders could not be sustained and did not validly extend the period for making assessments, the Court concluded that the impugned notices dated 20 February 1992 for assessment periods 1982-83 to 1987-88 could not be sustained on the ground that assessment was not time-barred; those notices (and the two stay orders) were therefore set aside. The petitioner did not press the challenge to the notice for 1988-89, and the Court recorded that position.
Holding and Implications
Holding: The Court set aside the two stay orders (annexure "A" collectively) and the impugned notices dated 20 February 1992 issued in respect of assessment periods 1982-83 to 1987-88; the rule was made absolute accordingly.
Implications:
- Direct effect on the parties: The two stay orders purporting to extend limitation were invalidated because they did not comply with rule 37-A (no show cause notice, no recorded reasons, and an unsupported assertion of the assessee's consent). As a consequence, the notices dated 20 February 1992 for assessments 1982-83 to 1987-88 were set aside on the basis that those assessments were time-barred and the stays did not validly extend limitation.
- The Court applied existing Supreme Court authority (FAG Precision Bearings) rather than creating a new precedent; the decision enforces the requirement that stays under section 42/read with rule 37-A be preceded by notice and supported by written reasons.
- The respondent-authority was left free to take such action as may be permissible under law (the Court expressly noted that the respondent may take lawful steps permitted by statute or rules), but the specific stay orders and the challenged notices were quashed as described above.
1. The petitioner challenges the notices issued by the Sales Tax Officer (I), Ahmedabad, the respondent No. 1 herein, on February 20, 1992 for assessment periods 1982-83 to 1988-89, on the ground that no assessment orders could be passed in respect of these years because the assessment had become time-barred.
2. The petitioner is a manufacturer of steel tubes at Ahmedabad, having its registered office in Ahmedabad. According to the petitioner, it was filing quarterly returns in respect of its taxable turnovers under the Gujarat Sales Tax Act, 1969 and the Central Sales Tax Act, 1956 from time to time. However, from the period commencing from 1st July, 1982 till the date of the filing of the petition, i.e., till 26th March, 1992, no assessment orders were received by the petitioner and all assessments for the years 1982-83 to 1988-89 were pending.
3. It is the petitioner's case that as per the provisions of section 42 of the Gujarat Sales Tax Act, 1969 as it operated at the relevant time, assessment orders under section 41(3) or section 41(4) were required to be passed before the expiry of two years from the end of the year in which the last monthly, quarterly, or, as the case may be, annual return, was filed, unless the assessment proceedings were stayed under the proviso to section 42 by a general or special order made by the authority concerned. According to the petitioner, for the assessment year 1982-83, the period of limitation prescribed under section 42, expired in December, 1986, for the year 1983-84, it expired in December, 1987 and so on for the subsequent assessment years. It is stated that for the first time the petitioner was served with an order on December 30, 1987 staying the assessment proceedings for the period 1983-84 up to December 31, 1988. According to the petitioner, for the year 1982-83, no such order was made and the assessment for that year had become time-barred. It is stated that another order purporting to stay the assessment proceedings for the assessment years 1982 to 1985. These orders were made without issuing any show cause notice under rule 37-A required to be issued before making such orders. It is in terms stated on oath in the petition that apart from these two stay orders, no other order was made under the proviso to section 42, staying the assessment proceedings for any of these assessment years. It is also the petitioner's case that these orders wrongly mentioned that consent was given by the petitioner for waiving the notice, which was required to be issued and that it had agreed to the making of the stay order.
4. It has been contended on behalf of the petitioner that the two stay orders which were issued by the respondent No. 1 for the year 1983-84 and for 1982-85 were made without hearing the petitioner and without recording any reasons for staying the proceedings. It was contended that the petitioner had never given any consent for passing of such orders and it is only with a view to avoid indicating reasons and circumstances necessitating stay of the proceedings in writing, that the respondent-authority had vaguely referred to some consent having been given by the petitioner. It was contended that the reliance placed in paragraph 5 of the affidavit-in-reply filed by the respondent-authority on a decision of this Court in PAG Precision Bearing Limited v. Sales Tax Officer [1993] 90 STC 294 was wholly misconceived because that decision has been reversed by the Supreme Court on 9th December, 1996 in FAG Precision Bearings v. Sales Tax Officer (I) reported in [1997] 104 STC 143.
5. There is no dispute about the fact that as per the provisions of section 42 of the State Act, as it operated at the relevant time, no order of assessment for an year or part of an year, could be made under sub-section (3) or sub-section (4) of section 41 of the Act, at any time after the expiry of two years from the end of the year, in which the last monthly, quarterly or, as the case may be, annual return, was filed. As per the proviso to section 42(1), it was, inter alia, provided that the Commissioner may, subject to such conditions as may be prescribed by a general or special order, stay either generally or for a specified period, the assessment proceedings of a dealer or a class of dealers. Under rule 37-A(2) of the State Rules framed under the State Act applicable at the relevant time, it was provided that the Commissioner shall reduce in writing the reasons and circumstance necessitating stay of any proceedings in respect of a dealer or a class of dealers. Construing this provision of section 42 of the State Act and rule 37-A of the Rules made thereunder, the Supreme Court in FAG Precision Bearings [1997] 104 STC 143 has held that the said power to stay assessment proceedings can be exercised only in extraordinary circumstances an for supervening reasons which cannot be attributed to the default or failure of the assessing authorities. It was held that it was not enough to say, as was done in that case, that the assessment proceedings were pending and would take "some more time". It was further held that the stay of the assessment proceedings had consequences of a civil nature upon an assessee and that more the time elapses, the more difficult it becomes for the assessee to prove its accounts and claim set-off, exemptions and the like. It was therefore, held that in the circumstances, the power under rule 37-A of the said Rules may not be exercised by the Commissioner without first giving to the assessee notice to show cause why his assessment proceedings should not be stayed for a stated period. Such notice should set out what the reasons and circumstances are, which according to the Commissioner necessitated such stay, so that the assessee has the opportunity of meeting the same. It was in terms held that this requirement of natural justice was required to be read in rule 37-A, having regard to its scope.
6. In the instant case, as the record stands, there were only two orders issued purporting to stay the proceedings for the years 1983-84 and years 1982 to 1985. On a close scrutiny of these two orders which are at annexure "A" collectively, we note that in the first order relating to the assessment year 1983-84, no reason has been mentioned, nor any circumstance indicated, which led to the order and it has been stated that it was assumed that the assessee had given his consent for waiving a show cause notice. In the second order also, no reason or circumstance leading to the making of the order, is stated and it is only mentioned that since the assessment could not be completed and that since it was assumed that there was a consent on the part of the assessee for staying the proceedings, the proceedings were so stayed. Both these orders, in our opinion, do not give any reason, much less any cogent reason, for staying the assessment proceedings. They vaguely mention about assumption of consent on the part of the assessee for waiving the show cause notice. Both the orders are printed orders with some blanks, which are filled in and even the mention about assumption of consent of the assessee appears in the printed matter. When the respondent-authority was required to give a show cause notice under rule 37a of the said rules before making any order staying the proceedings, we fail to understand as to how and in what manner an assumption about the consent of an assessee could be made in absence of any positive consent being given by the assessee. We do not find any contemporaneous record to indicate that any consent was given by the assessee. We are therefore, not prepared to accept the stand reflected in the orders that the proceedings were stayed on the basis of the consent of the assessee.
Mere pendency of the assessment proceedings cannot itself be a ground for staying the proceedings, as held by the Supreme Court in FAG Precision Bearings v. Sales Tax Officer (I) [1997] 104 STC 143. The power to stay the proceedings can be exercised only in extraordinary circumstances and for supervening reasons, which cannot be attributed to the default or failure of the assessment officers and it would not be a good or sufficient reason just to say that since the proceedings are pending, stay is being granted.
7. It is not disputed that no notice under rule 37-A of the said Rules was issued in respect of the years in question for which the assessment would have been time-barred to show cause as to why the proceedings should not be stayed. We are also satisfied that the two stay orders which are at annexure "A" collectively, do not record any valid reason as contemplated by rule 37-A of the Rules. Therefore, these two stay orders cannot be sustained and will not have the effect of extending the period of limitation for making the assessment orders.
8. The petitioner seeks to challenge the notices dated February 20, 1992, issued by the respondent for proceeding with the assessment proceedings and making the assessments for the years 1982-83 to 1988-89. At the hearing of the petition, it was noticed that so far the notice dated February 20, 1992 in respect of the year 1988-89 was concerned, it could not have been assailed on the ground that it was in respect of a time-barred assessment. The learned counsel for the petitioner after verifying this particular notice in respect of year 1988-89, submitted that the petitioner does not press for its challenge against that assessment notice. So far the notices dated February 20, 1992 for the assessment periods 1982-83 to 1987-88 are concerned, for the reasons that we have given hereinabove, they cannot be sustained since assessment for those periods had been time-barred and there was no valid stay of those proceedings. We therefore, set aside the two stay orders at annexure "A" collectively along with the impugned notices dated February 20, 1992 for the assessment periods 1982-83 to 1987-88. Rule is made absolutely accordingly.
9. Needless to say that it will be open for the respondent-authority to take such action as may be permissible to it under the law.
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