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Deshanur Oil Mills v. C.T.O Circle Iii Belgaum
Structured Summary of the Provided Opinion
Factual and Procedural Background
Three writ petitions raising a common question of law were disposed of by a single order. The petitioners, all ground-nut oil manufacturers, purchased ground-nuts, decorticated them and sold shelled nuts both within Karnataka and outside the State. Each petitioner had submitted returns for the assessment year 1964-1965. The Commercial Tax Officer (C.T.O.) assessed them in 1967, granting exemption for interstate sales turnover of ground-nut on the basis of the Supreme Court decision in Yadalam's case.
Subsequently, the Central Sales Tax Act was amended retrospectively by the Amendment Act of 1969 to subject interstate sale of ground-nut to tax, while the Amendment Act of 1969 also provided a protection (referred to in the opinion as Section 10 of the 1969 Amendment Act) exempting dealers who had not collected tax at the time of sale. The petitioners sought protection under that provision.
The petitioners received notices dated 23-9-69 under Section 12-A of the Act alleging that interstate sales turnover had escaped assessment for 1964-65 and asking for production of books of account. Later, on 26-3-76, the C.T.O. issued notices (referred to in the petitions as Exhibit-B) under Section 25-A of the Act seeking rectification of the respective assessment orders for the assessment year 1964-1965. The assessment orders had been passed in 1967 on different dates (30-8-67, 19-6-67 and 6-1-67). The petitioners challenged the Exhibit-B notices as being issued beyond the five-year limitation period prescribed by Section 25-A.
Legal Issues Presented
- Whether the notices dated 26-3-76 (Exhibit-B) issued under Section 25-A of the Karnataka Sales Tax Act were illegal and without jurisdiction because they were issued beyond the five-year limitation period prescribed by Section 25-A.
- Whether the prior notice dated 23-9-69 issued under Section 12-A could be construed as a sufficient notice under Section 25-A (i.e., whether a Section 12-A notice can stand in place of the limitation-bound rectification notice under Section 25-A).
- Whether the impugned Exhibit-B notices could alternatively be construed as mere demands (so as to make them enforceable) in the light of the Full Bench decision in Gill & Company's case.
Arguments of the Parties
Appellants / Petitioners (represented by Sri K. Srinivasan)
- The Exhibit-B notices dated 26-3-76 under Section 25-A were issued beyond five years from the dates of the assessment orders and therefore were illegal and without jurisdiction.
- The earlier notices of 23-9-69 under Section 12-A did not operate as notices under Section 25-A; Section 12-A relates to escaped assessments requiring investigation and a fresh assessment, whereas Section 25-A deals with rectification of apparent mistakes within five years and does not permit fresh investigation.
- Because the assessing authority had granted exemption in reliance on Yadalam's case and the turnover had been disclosed (exemption claimed and allowed), this was not a case of escapement covered by Section 12-A.
- The Department's long silence (nine years) precluded invocation of the rectification power under Section 25-A outside its statutory limitation; issuing Exhibit-B after that delay effectively admits that the matter was one of rectification and hence barred by the time limit.
Respondent (Commercial Tax Officer)
- The Court should construe the 23-9-69 notices under Section 12-A as sufficient notice to rectify the assessment orders (i.e., as satisfying the requirement for rectification proceedings under Section 25-A).
- Alternatively, the impugned Exhibit-B notices should be construed as mere demands (relying on the Full Bench decision in Gill & Company's case), which would make the petitioners liable to pay the tax.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Yadalam's case | Explains the legal basis on which the assessing authority granted exemption for interstate sales turnover of ground-nut at the time of the original assessments. | The Court records that the assessment orders granting exemption were made in the light of Yadalam's case; this factual background is material to the petitioners' claim that there was no escapement of turnover. |
| (1974) 3 SCC 5 : 1973 AIR SC 1325 | Establishes that where an assessee who had been given exemption had in fact collected tax, recovery of such tax is permissible under Section 25-A. | The Court notes that it is "no longer res-integra" that recovery under Section 25-A is permissible in such circumstances and cites this authority to record the state of law on that point; the opinion does not expand further beyond this citation. |
| Gill & Company's case (Full Bench) | Considered by the respondent as authority to treat a notice as a demand where an assessment has been concluded and the tax remains unpaid. | The Court rejected the respondent's reliance on this decision for the present facts, explaining that a demand presupposes a concluded assessment with tax quantified; the impugned notices did not quantify tax or constitute a demand following a concluded assessment, so Gill & Company's case was inapplicable as relied upon. |
Court's Reasoning and Analysis
The Court's analysis proceeded by distinguishing the nature and function of Section 12-A and Section 25-A of the Act and by examining the substance of the notices and the chronology.
-
Legal character of Section 12-A vs Section 25-A:
- Section 12-A is a machinery provision to bring to tax turnover that has escaped assessment; it contemplates investigation, fresh assessment based on records, books of account and other material, and applies where escapement arises from oversight or concealment.
- Section 25-A permits rectification of a mistake apparent from the record and does not permit fresh investigation or reconsideration of facts; rectification is limited to apparent errors of law on the face of the record and must be done within five years from the date of the order.
-
Application to the factual record:
- The 23-9-69 notices clearly asked the petitioners to produce books of account to bring to tax what was described as escaped interstate turnover; this characterizes those notices as Section 12-A escape-assessment notices requiring investigation rather than Section 25-A rectification notices.
- The Exhibit-B notices dated 26-3-76 purported to be issued under Section 25-A to rectify the original assessments. They were, however, issued more than five years after the respective assessment orders (which were dated in 1967), and that delay was not disputed.
-
On construing the 1969 notices as sufficient for rectification:
- The Court held that it would be impermissible to construe a Section 12-A notice (which commences investigation for escaped assessments) as a Section 25-A notice (which rectifies apparent mistakes). The substantive difference in procedure and purpose makes such a conversion unlawful and contrary to the statute.
-
On construing the Exhibit-B notices as mere demands (reliance on Gill & Co.):
- The Court explained that a demand presupposes a concluded and quantified assessment. The impugned notices did not quantify tax nor indicate that an assessment had been concluded which could support a demand. Instead, the notices sought production of books to determine whether tax had been collected. Thus, Gill & Company's ratio did not assist the respondent in the present factual matrix.
-
Credibility of the Department's position:
- The Court accepted the petitioners' point that the Department's long silence (nine years) followed by issuance of a Section 25-A notice effectively acknowledged that the matter was one of rectification rather than an escaped assessment, and hence was time-barred under Section 25-A.
Holding and Implications
Holding: The petitioners succeed; the Rule is made absolute and the impugned notices at Exhibit-B (dated 26-3-76) in all the petitions are quashed.
Implications:
- The direct effect is that the Section 25-A notices issued on 26-3-76 to rectify the assessment orders for the assessment year 1964-1965 are set aside and cannot be enforced against the petitioners.
- The opinion rejects the respondent's alternative contentions (that the earlier Section 12-A notices operate as Section 25-A notices, and that Exhibit-B could be treated as a demand under Gill & Company's case) on the facts of these matters.
- No broader legal proposition beyond the decision's application to these facts is articulated in the opinion; the Court did not purport to lay down a new precedent beyond applying established distinctions between escaped-assessment proceedings (Section 12-A) and rectification (Section 25-A).
- There will be no order as to costs.
This summary is based exclusively on the text of the provided opinion and does not add or infer facts or authorities beyond those expressly mentioned therein.
1. These three petitions are disposed of by this common order as a common question of law has been raised in all the petitions. Though assessees-petitioners are different their common grievance is that the impugned notice at Exhibit-B in each of the petitions was illegal and without jurisdiction in as much as the same was issued beyond the period of limitation prescribed under Section 25-A of the Karnataka Sales Tax Act (hereinafter referred to as ‘the Act’). The said Exhibit-B is dated 26-3-76.
2. All the petitioners are ground-nut oil manufacturers. They purchase ground-nuts and re-cortigate and then sell the nuts without shells both in the State of Karnataka as well as outside. Each of the petitioners submitted his return for the assessment year 1964-1965 and the respondent-Commercial Tax Officer (hereinafter referred to as ‘the C.T.O) at the relevant time assessed them giving exemption to the interstate sales turnover of the petitioners in respect of ground nuts. The assessment orders in respect of all the three petitioners were completed and the orders passed in the year 1967 itself though on different dates. The exemption was given in the light of the decision of the Supreme Court in Yadalam's case(1). After Yadalam's case was rendered, the Central Sales tax Act came to be amended retrospectively subjecting to tax among other things interstate sale of ground nut also. However, the Amendment Act of 1969, provided for exemption of liability to pay the tax by the concerned dealer if he had not collected the tax at the time when the sale transaction took place. It is unnecessary to go into that aspect of the case in these Writ Petitions. Though it appears from the records produced by the learned Government Pleader that all the assessees sought protection of Section 10 of the 1969 Amendment Act.
3. All of them received a notice dated 23-9-69 purporting to have been issued under Section 12-A of the Act to bring to tax the interstate sales turnover in ground-nut of the petitioners for the assessment year 1964-1965 as the same had escaped assessment for the said year.
4. In other words, what happened after the Central Sales tax Act was amended by the Amendment Act of 1969 was that the C.T.O, presumably proceeded to reassess the petitioners forming the opinion that granting them exemption for the assessment year amounted to escapement of liability as the turnover was retrospectively brought, to tax. As already mentioned the petitioners took the defence that the Amendment Act of 1969 was constitutionally invalid and in any event they were not liable to pay tax having regard to Section 10 of the Amendment Act. They also took the stand that granting of exemption would not amount to the turnover escaping assessment. It is seen from the records made available to the Court that the matter rested there and on 26-3-76 the CTO., issued notice under Section 25-A of the Act to rectify the assessment order in relation to each of the petitioners for the assessment year 1964-1965. Section 25-A of the Act is as follows:
“25-A: Rectification of mistakes (1) With a view to rectifying any mistake apparent from the record, the assessing authority, appellate authority or revising authority may, at any time, within five years from the date of an order passed by it, amend such order:
Provided that an amendment which has the effect of enhancing an assessment or otherwise increasing the liability of the assessee shall not be made unless the assessing authority, appellate authority or revising authority, as the case may be, has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard.
(2) Where an order has been considered and decided in any proceedings by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.
(3) An order passed under sub-section (1) shall be deemed to be an order passed under the same provision of law under which the original order, the mistake in which was recitified had been passed.”
5. It is no longer res-integra that if as in the instant cases the assessees had been given exemption, in respect of taxable turnover for the relevant, assessment year which was otherwise subjected to tax by the 1969 Amendment Act, if the dealer had collected the tax, it was liable to be recovered under Section 25-A of the Act (See (1974) 3 SCC 5 : 1973 AIR SC 1325).
6. Sri K. Srinivasan, learned Counsel appearing for the petitioners in all the petitions has pointed out that whatever be the defence taken by the petitioners in response to the notice issued under Section 12-A of the Act, the impugned notice at Ex-B, calliing upon them to show cause why the assessment orders should not be rectified would clearly be impermissible in as much as the same was beyond 5 years from the date of the respective assessment orders i.e, 30-8-67, 19.6.67 and 6.1.67 The fact that the impugned notices have been issued beyond five years from the date of the respective assessment orders is not in dispute. What is contended for the respondent-C.T.O is that this Court should either construe the notice issued in 1969 under S. 12A of the Act as sufficient notice to rectify the respective assessment orders in respect of the petitioners or in the alternative the impugned notices should be construed as a mere demand made for the tax though it purports to be a notice under Section 25-A of the Act.
7. The thrust of the argument is that if this Court were to come to the conclusion that what is proposed is no more than the rectification of the assessment orders on account of the apparent error of law in the assessment orders notices issued under Section 12-A of the Act would amount to commencing proceedings under Sec. 25A of the Act. This is clearly impermissible. Section 12A as is now settled is a machinery available to the assessing authority to bring to tax such turnover of a dealer which has escaped assessment. The escapement could be the result of either oversight on the part of the assessing authority or on account of concealment or suppression by the dealer. In either of the cases, the procedure to be followed is a fresh assessment after investigation of the relevant books of accounts and the records and such other new material which the assessing authority may have in his possession at the time of issuing the notice. Whereas rectification on the other hand is permissible only where there is an apparent error of law on the face of the record and does not involve fresh investigation or consideration of facts. In the notices issued to the petitioners in 1969, they were clearly asked to produce their books of accounts for the relevant assessment year in order to bring to tax what according to the notice was escaped turnover of inter-state sale of ground nuts. The counsel for petitioners argued that the cases of the petitioners did not involve any escapement at all as the turnover was disclosed and exemption was claimed in view of Yodatam's case and the exemption was allowed by the assessing authority and therefore, the same was outside the purview of S. 12A of the Act. He has further argued, the Department which kept silent for nine years could not invoke its jurisdiction under Sec. 25-A of the Act contrary to the express limitation contained in that section itself. The learned counsel's contention has to be allowed as the Department by issuing the impugned notice at Exhibit-B practically admits that it is not a case of escaped assessment but a case of apparent mistake requiring rectification. To construe the notice issued under S. 12-A of the Act as notice under Section 25A of the Act would be wholly impermissible and contrary to law.
8. It is next contended for the respondent-C.T.O, that having regard to the ruling of this Court in Gill & Company's case by a Full Bench, the impugned notice should be construed as a mere demand and therefore the petitioners were liable to pay the tax. This contention is no well taken. A demand follows a concluded assessment. Without an assessment there cannot be a demand. The impugned notice merely mentioned the amount of inter state sales turnover of the petitioner in ground-nut which was exempted and no mention is made of any tax being due. In any event it is useful to recall that the petitioners have taken the stand that they had not collected tax in respect of inter-State turnover at all and therefore, they were entitled to exemption under Section 10 of the 1969 Amendment Act. In fact without the tax being quantified by the assessing authority a demand or reminder cannot issue. The notice makes it clear that the petitioners should appear with their books of account before the C.T.O so that he could make sure whether they had or had not collected Central Sales-tax on the turnover originally exempted. Havnig regard to this statement of fact in the impugned notice itself, it cannot be said to be either a demand or a reminder on the basis of which this Court rendered the opinion in Gill and Company's case. In order to make the above position clear, it is necessary to state that the ratio decision in Gill and Company's case will be advantageous to the Revenue only if it is demonstrated that an assessment was concluded against the assessee and only the amount of tax on such assessment remained unpaid when the demand or reminder was issued without any final rectification proceedings.
9. For the above reasons, the petitioners succeed. The Rule is made absolute and the impugned notices at Exhibit-B in all the petitions are hereby quashed.
10. There will be no order as to costs.
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