M/S. Hind Mercantile... v. The Commissioner Of ...

Order of the Court was made by Hegde, J.:—

These are appeals under Section 21(1) of the Mysore Sales Tax Act, 1957 to be hereinafter referred to as the ‘Act’ against the common order passed by the Commissioner of Commercial Taxes in Mysore to be hereinafter referred as the ‘Commissioner’ in C.T.R.P Nos. 312 and 313 of 1962-1963 on his file. In those proceedings, the petitioner's liability to pay sales tax during the second half of 1957-1958 and 1958-1959 came up for consideration. In those proceedings the Commissioner revised the order of the Deputy Commissioner of Commercial Taxes in certain respects.

The material facts of this case are those: The assessee is a dealer in Iron and Manganese Ore. In the course of relevant assessment years, the assessee bad made certain purchases of iron and manganese ore. According to him, part of his purchases was made in the course of his inter-state trade and the other part in the course of export outside India. The Commerical Tax Officer rejected both these contentions and assessed him under Section 5(3)(b) of the Act. Aggrieved by the order of the Commercial Tax Officer, the assessee went up in appeal to the Deputy Commissioner of Commercial Taxes. The Deputy Commissioner rejected the claim of the assessee in respect of the purchases claimed to have been made in the course of interstate trade, but accepted his claims in respect of the purchases said to have been made in the course of export outside India. To the extent the appeal went against the assessee, he has filed second appeals before the Sales Tax Appellate Tribunal. But to the extent the Deputy Commissioner accepted the claim of the assessee, the Commissioner has revised his order acting under Section 21(2) of the Act. He has held that the transactions in question were not purchases made in the course of export outside India and hence the turnover relating to them were liable to be assessed under Section 5(3)(b) of the Act.

The impugned orders of the Commissioner are assailed on three grounds, namely,

(1) that on the proved facts of the case, the Commissioner erred in holding that the purchases in question were not purchases in the course of export.

(2) Under any circumstancs, the said purchases were not liable to be brought within the not of taxation under Section 5(3)(b) read with Schedule 3; and

(3) as the orders of the Deputy Commissioner are appealed against and the appeals in question are pending before the Sales Tax Appellate Tribunal, the Commissioner had no jurisdiction to revise the orders of the Deputy Commissioner.

We shall now take up for consideration each one of these contentions.

As regards the purchases said to have been made in the course of export outside India, both the Commercial Tax Officer as well as the Deputy Commissioner of Commercial Taxes have come to the conclusion that those purchases were made by the assessee to fulfil his antecedent contracts with a foreign buyer. The case for the assessee was that prior to the date of those purchases, he had entered into a contract with a foreign buyer under which he had agreed to supply him certain quantities of iron and manganese ore. The question for decision is whether such purchases can be considered as purchases in the course of export. This point is concluded by a series of decisions of the Supreme Court, the last of which is that reported in East India Tobacco Company v. The State of Andhra Pradesh . XIII S.T.C 529.. Speaking for the court, this is what Venkatarama Aiyar J. said in that case:

“Now the contention is that the agreement entered into with the foreign purchasers for sale of the Virginia tobacco, the purchase of the same locally by the appellants for performing the contract and their subsequent export to the foreign purchasers must all be held to form one integrated transaction of sale in the course of export.

Now the observations quoted above were made in refutation of the contention that the expression “sale in the course of export or import” meant only a sale which takes place while the goods are actually in movement, in the course of export or import, as for example, when shipping documents are endorsed and delivered when the goods are in transit. This Court held that this was too narrow an interpretation to put on the words in question and that a sale which actually occasions the export or import would fall—within Article 286(1)(b). The question whether sales which precede export are sales in the course of export within Article 286(1)(b) arose directly for decision in State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory (4 S.T.C 205) and it was held that they were not. Explaining, in the course of the judgment, the true scope of the observations in State of Travancore-Cochins Case (3 S.T.C 434) qouted above, Patanjali Sastri O.J Observed:—

“The phrase ‘integrated activities’ was used in the previous decision to denote that, ‘such a sale’ (i.e, a sale which occasions the export) ‘cannot be dissociated from the export without which it cannot be effectuated, and the sale and the resultant export form parts of a single transaction’. It is in that sense that the two activities the sale and the export—were said to be integrated. A purchase for the purpose of export like production or manufacture for export, is only an act preparatory to export and cannot, in our opinion, be regarded as an act done ‘in the course of the export of the goods out of the territory of India’, any more than the other two activities can be so regarded.”

We may refer to two other decisions of this court where this question has been considered. In The State of Madras v. Gurviah Naidu Co., Ltd., the facts were that an assessee secured orders for the supply of untanned hides and skins from London purchasers and then, he purchased them locally in order to implement those orders and exported them, and the question was whether a tax on those purchases was hit by Article 286(1)(b). In holding that it was not, this court observed:—

“Such purchases were, it is true, for the purpose of export but such purchases did not themselves occasion the export and consequently did not fall within the exemption of Article 286(1)(b) of the Constitution as held by this Court in the The State of Tavancore-Cochin v. The Bombay Company Ltd. (3 S.T.C 434). Nor did such purchases in the State by the exporter for the purpose of export come within the ambit of Article 286(1)(b), as held by the majority in The State of Travancore-Cochin v. Shanmugha Vilas, Casheivnut Factory (4 S.T.C 205).”

“The point came up again for considaration before this Court in The State of Mysore v. Mysore Spinning and Manufacturing Co., (9 S.T.C 188) and it was held following the decision cited above that Article 286(1)(b) could be invoked only in respect of the sale which occasions the export, and not of any sales precedent to it.

On these authorities the law must be taken to be well settled that it is only the sale under which the export is made that is protected by Article 286(1)(6), and that a purchase which precedes such a sale does not fall within its purview though it is made for the purpose of, or with a view to, export. The impugned legislation must accordingly be held not to contravene Article 286(1)(b)………”

For the reasons mentioned above, we must reject the contention of Mr. Somashekar that the transactions in dispute can be considered as purchases in the course of export outside India.

We shall next take up the contention of Mr. Somasekar that these transactions do not fall within the scope of Section 5(3)(b) read with Schedule 3 of the Act. This contention does not appear to have been taken before the Commissioner. Nor do we think that there is any merit in that contention. Section 5(3)(b) of the Act provides for a single point taxation on purchases of certain articles enumerated in Schedule III. Iron and manganese ore are included in item 12 of Schedule III. The point of leavy on purchase of those articles is “purchase by the last dealer in the State liable to tax under this Act.” It is not the case of the assessee that these goods were sold by him to any another person in the State who is liable to tax under the Act. His only case is that in the State of Mysore, these goods were purchased only by him and nobody else. Therefore he cannot be considered as the “last purchaser”. In other words, according to Mr. Somashekar, before a purchaser can be considered as a “last purchaser” there must be a series of “purchases”, atleast there must be two “purchases”; if there is only a single purchase transaction, then that transaction cannot be brought within the net of taxation.

The scheme of 1957 Act was considered by a Full Bench of this court in The State of Mysore v. Gujjadi Narayan Nayak. Speaking for the Court, the learned Chief Justice observed therein (at page 916 and 917) thus:

“it may be remembered that the Act replaces various sales tax enactments which were in operation in the different integrating areas which went to make up the new State of Mysore and under those enactments the general scheme was that all sales including successive sales of the same goods had to be taken into account in reckoning the turnover though in respect of a small number of categories of goods like hides and skins there was a single point levy. The occasion for replacing them by a uniformly applicable new enactment appears to have been taken to put into effect the single point levy in respect of a large number of categories of goods. As mentioned earlier, Section 5(3)(a) relates to certain categories of good (mentioned in the second Schedule) in respect of which the single point levy is with reference to sales; Section 5(3)(b) relates to such levy in respect of purchases of certain other categories of goods (mentioned in the Third Schedule) and Section 5(4) relates to declared goods (mentioned in the Fourth Schedule). The object obviously was to make levy at one of the points if there was a series of transactions in respect of specified goods, either the first or the last. But such first or last dealer might be one exempt from taxation, since Section 5(5) say “that a dealer whose total turnover in any year is less than Rs. 7,500 shall not be liable to pay tax for that year under this section.” Hence Section 5(3)(a) made the next unexempted dealer in the series liable for the levy. It may be noticed that Section 5(3)(a) itself refers to the liability of the first or the earliest of successive dealers in the State, while Section 5(3)(b) and Section 5(4) do not make such a reference. But the result is the same, since in the corresponding Schedules, i.e, Second and Third Schedules, it is made clear in column (3) indicating the point of levy that the sale or purchase is to be by the first or earliest of successive dealers in the State liable to tax. There is, however, one difference, namely, that while under Section 5(3)(a) such dealer is to be one who is liable to tax under that Section, i.e, section 5, under Sections 5(3)(b) and 5(4) as also in the Third and Fourth Schedules such dealer is to be one who is liable to tax under the Act. This aspect of the matter will be dealt with later.”

The object of Section 5(3)(b) as we understand it, is to tax all “purchases” of goods mentioned in Schedule III at one point, may be the point of levy in some cases is the “first purchase” and in others “last purchase”. But no transaction is exempt from taxation. The expression “purchase by the last dealer in State liable to tax under this Act” found in the Third Schedule of the Act does not mean that there should be a series of “purchases”. It merely means that if there are more purchase transactions in respect of the same goods than one, then it is the last purchase transaction by dealer liable to pay tax under the Act that attracts the levy. If there is only one such purchase transaction in respect of those goods in the State, then it is that transaction which attracts the levy.

For the above reasons, we are unable to agree with Mr. Somashekar that the transactions with which we are concerned in the case are not liable to be taxed under Section 5(3)(b) of the Act.

The only other contention remaining for examination is whether the Commissioner had jurisdiction to revise the orders of the Deputy Commissioner of Commercial Taxes.

In order to find out the extent of the revisional power of the Commissioner, we have to determine the true scope of Sec. 21(2) of the Act. That section reads:

“(2) The Commissioner may—

(i) suo motu, or

(ii) in respect of any order passed or proceeding recorded by the Deputy Commissioner under sub-section (1) or any other provision of this Act and against which no appeal has been preferred to the Appellate Tribunal under Section 22, on application, call for and examine the record of any order passed or proceeding recorded under the provisions of this Act by any officer subordinate to him for the purpose of satisfying himself as to the legality or propriety of such order, or as to the regularity of such proceeding, and may pass such order with respect thereto as he thinks fit:

Provided that the power of the Commissioner under clause (i) shall not be exercisable in respect of any appealable order before sixty days from the date on which the order was communicated to the assessee…”

There is no doubt that the paragraphing of this Section was not done properly. Section 21(2) of the Act is more or less a copy of Section 15(2) of the Mysore Sales Tax Act, 1948. That Section reads as follows:

“(2) The Commissioner,—

(i) suo motu, or

(ii) in respect of any order passed or proceeding recorded by the Deputy Commissioner under Sub-section (1) or any other provision of this Act and against which no appeal has been preferred to the Appellate Tribunal under Section 16, on application,

call for and examine the record of any order passed or proceeding recorded under the provisions of this Act by any officer subordinate to him, for the purpose of satisfying himself as to the legality or propriety of such order, or as to the regularity of such proceeding and may pass such order with respect thereto as he thinks fit:

Provided that the power of the Commissioner under clause (i) shall not be exercisable in respect of any appealable order before sixty days from the date on which the order was communicated to the assessee.”

From a reading of Section 15(2) of the 1948 Act and Sec. 21(2) of the Act, it is clear that the expression “call for and examine the record of any order passed or proceeding recorded under the provisions of this Act by any officer subordinate to him, for the purpose of satisfying himself as to the legality or propriety of such order, or as to the regularity of such proceeding and may pass such order with respect thereto as he thinks fit” applies both to clause (i) and clause (ii).

On analysis of Section 21(2) of the Act, it is seen that the Commissioner can suo motu call for and examine the record of any order passed or proceeding recorded under the provisions of the Act by any officer subordinate to him for the purpose of satisfying himself as to the legality or propriety of such order, or as to the regularity of such proceeding and may pass such order with respect thereto as he thinks fit. Similarly, he may, in respect of any order passed or proceeding recorded by the Deputy Commissioner under sub-section (1) or any other provision of the Act and against which no appeal has been preferred to the Appellate Tribunal under Section 22, on application, call for and examine the record of such order passed or proceeding recorded under the provisions of the Act by any officer subordinate to him for the purpose of satisfying himself as to the legality or propriety of such order, or as to the regularity of such proceeding, and may pass such order with respect thereto as he thinks fit. The two powers mentioned in Section 21(2) are independent powers. They can be exercised in the manner prescribed in that provision. It is not correct to say that while exercising the sou motu power, the Commissioner can only call for the records of a case where no appeal has been filed. The limitation that he can call for the records of a case wherein no appeal has been filed, is confined to cases mentioned in clause (ii) of sub-section (2) of Section 21 of the Act. That limitation does not apply to his suo motu power. In other words, there is no such limitation when he exercise his power under Section 21(2)(i). The language of that provision is plain and unambiguous. It does not call for any interpretation. The only limitations on the powers conferred on him under Section 21(2)(i) are that mentioned in the proviso, namely that he cannot exercise his power under Section 21(2)(i) before sixty days from the date on which the order which he seeks to revise was communicated to the assessee and that he should exercise that power within 4 years from the date on which the order which he seeks to revise was communicated to the assessee.

It was contended by Mr. Somashekar that if the Commissioner has power to revise any order even after an appeal has been filed against that order, then the power of the appellate authority to deal with the case would be jeoparadized and therefore we should so construe the provision as to hold that the Commissioner can exercise his re visional powers only in cases where no appeals have been filed. His argument in this regard proceeded thus. The order of the lower authority gets merged with the order of the appellate authority when it is passed, whether the order of the appellate authority is one of confirmation or modification or reversal. If the Commissioner is held to have power to revise any order of his subordinate even when an appeal is pending against that order, there is every likelihood of two conflicting decisions, one of the Commissioner and another of the Appellate authority and if such conflict arose, then the question would arise as to which of those orders is effective. He lastly contended that if the intention of the legislature was to empower the Commissioner to revise all orders of his subordinate even when an appeal is pending, there was no purpose in the legislature enacting the proviso noticed earlier.

As mentioned earlier, the language of Section 21(2)(1) is plain and unambiguous. The proviso does not cut down the width of the power conferred under it. It is fruitless to speculate why the legislature enacted the proviso referred to earlier. Whatever its purpose may be, one thing is clear that it does not affect the nature of the power conferred under Section 21(2)(1). All that the proviso says is that he shall not exercise his power in respect of appealable orders before sixty days from the date on which the order was communicated to the assessee. The only other limitation on that power is that the Commissioner should exercise it within four years from the date on which the order was communicated to the assessee. (See Section 21(3).)

In the instant case, there is no need for us to consider the scope of the doctrine of merger of the orders appealed against with the appellate order. As noticed earlier, the Deputy Commissioner held against the assessee in certain respects but at the same time he upheld the contention of the assessee in other respects. In fact, the turnover of the assessee can be broadly divided under two heads, namely.

(1) Turnover relating to transactions which according to him were made in the Course of inter-state trade; and

(2) turnover in respect of transactions which according to him were made in the course of export outside India.

As regards the first, the Deputy Commissioner rejected the claim of the assessee. As regards the second, he upheld his claim. As against the decision of the Deputy Commissioner in so far as it went against it, the Department could not go up in appeal to the Tribunal. Unless the order of the Deputy Commissioner in that regard is revised by the Commissioner, that order would become final and conclusive. In the appeals filed by the assessee, the primary point that arises for decision by the Tribunal is whether the transactions in dispute are transactions in the course of inter-state trade. The Commissioner has merely revised that portion of the order of the Deputy Commissioner which is not under appeal. In this case, it is not necessary for us to consider whether the Commissioner could have revised the portion of the order of the Deputy Commissioner which is under appeal. It may also be noted that under the scheme of the Act, the assessment is only made by the Commercial Tax Officer. Both the Deputy Commissioner for Commercial Taxes and the Tribunal are merely required to decide the points in dispute and direct the Commercial Tax Officer to revise the assessment order in accordance with their decision. Neither of them could make any assessment. In the instant case, at first, the Deputy Commissioner directed the Commercial Tax Officer to correct his assessment order by excluding the transactions which according to him were effected in the course of export outside India. That portion of the order of the Deputy Commissioner is now revised by the Commissioner. The Commissioner has directed the Commercial Tax Officer to assess the assessee on the basis that those transactions are liable to tax. If the assessee succeeds in his appeals before the Tribunal, the Tribunal will direct the Commercial Tax Officer to correct the assessment order on the basis of its decision. There is no room for any conflict between the order made by the Commissioner and the order that may be made by the Tribunal.

The facts of this case, in our opinion, fall within the rule laid down by the Supreme Court in Commissioner of Income-Tax, Bombay v. Amritlal Bhogilal & Co.,.

For the reasons mentioned above, we do not think that any of the contentions advanced by Mr. Somashekar can be accepted. Hence these appeals are dismissed with costs of respondent (one set). Advocate's fee Rs. 100.