M/S. K.B Foams (P) Ltd. v. Deputy Commissioner Of Commercial Taxes

Rajasekhara Murthy, J.:—

The petitioner-firm supplied polyurethane foam-sheets to various manufacturers for use by them as component parts of goods manufactured by them for sale within the State. During the year 1-4-1976 to 31-7-77 the turnover in respect of the foam sheets supplied by the petitioner-Co., amounted to Rs. 12,13,614-40 Ps. The petitioner's turnover in the same goods supplied to others was also returned separately and it was Rs. 14,71,943-27 Ps.

2. These goods were liable to tax under Entry 16 of Schedule II to the Karnataka Sales Tax Act at 12% under Section 5(3A)(a) of the Act during the relevant period.

3. In respect of the goods, which were sold to a registered dealer for use by the latter as component parts, they were subjected to levy at a concessional rate of 3% under Section 5(3A) of the Act.

4. The Assessing Officer made an order of assessment scrutinising the declarations filed by the dealers to whom the goods were sold and taxed the turnover under Section 5(3A) of the Act at 3%. The supplies made to others of the same goods, was however taxed at 12%.

5. The assessment was completed by the Assessing Officer on 27-8-1977 and the petitioner was given the benefit of concessional rate by accepting its turnover.

6. The Deputy Commissioner of Commercial Taxes, Bangalore City Division, Bangalore, initiated action in exercise of powers vested in him under Section 21(2) of the K.S.T Act and revised the order of the C.T.O in so far as it related to the concessional rate granted under Section 5(3A) of the Act was concerned. The main reason for revising the order of assessment was that one of the purchasers, namely, Karnataka Coir Products Ltd., Bangalore, who had issued declaration Form No. 37, had not manufactured any goods for sale within the State as required under Section 5(3A) of the Act. On the other hand, they had effected sales of the goods supplied by the petitioner to the Maharashtra State Road Transport Corporation. He relied upon a letter dated 30-8-77 issued by the Karnataka Coir Products Ltd., for coming to this conclusion. The Deputy Commissioner of Commercial Taxes, thereupon, withdrew the concessional rate at which the goods had suffered tax under Section 5(3A) by setting aside that portion of the order and held that the same was liable to be taxed at 12% instead of 3%.

7. The petitioner did not challenge that order until he filed a rectification application under Section 25A of the Act on 12-1-1982. By the said application the petitioner sought for a rectification of the order made by the D.C, under Section 21(2) relying upon the decision of this Court in Bangalore Motor Accessories v. Dy. Commr. Of Commercial Taxes . 47 STC 54.. It was urged by the petitioner that it was entitled to the concessional rate of fax on production of declaration in Form No. 37 issued by the purchaser and the non-user of the goods by the purchaser for manufacture of any other goods inside the State for sale, as required under Section 5(3A) of the Act, was immaterial. The petitioner, therefore, prayed that the order of the Deputy Commissioner setting aside the assessment and withdrawing the concessional rate, should therefore be rectified in view of the decision of this Court in Bangalore Motor Accessories case, referred to above.

8. The Deputy Commissioner of Commercial Taxes rejected the said application by his order dated 15th March 1982. He held, that there was no mistake apparent from the records warranting rectification of the order made by his predecessor under Section 21(2) of the Act. The Deputy Commissioner, however, held that what was sold by the petitioner were finished sheets and not foam rubber in the form of sheets.

This order of the Deputy Commissioner is challenged in this Writ Petition.

9. It is argued by Sri S.P Bhat, learned Counsel for the petitioner that there was no error in the assessment order and the concessional rate of tax was allowed by the Assessing Officer after being satisfied about the declarations filed in Form No. 37. This order, according to Sri Bhat was in accordance with the provisions of the Act and the decision of this Court in Bangalore Motor Accessories' case. It was, therefore, contended by Sri Bhat that the Deputy Commissioner's order revising the assessment and withdrawing the concessional rate, was not warranted on the facts of the case. This order, therefore, suffered from an error apparent on the face of the record, in that, it was contrary to the law laid down by this Court in Bangalore Motor Accessories' case and therefore the Deputy Commissioner should have rectified the order to bring it in conformity with the decision of this Court.

10. Sri Bhat also relied upon another decision of this Court reported in Mulgund & Co. v. State Of Karnataka . 55 STC 339., in which the Division Bench held:

“When once the declaration is made by the buyer in the prescribed form and the same is furnished by the assessee in the assessment proceedings, no other proof of any other circumstances could be insisted upon by the assessing authority to extend the benefit of the concessional rate of tax. If the assessee furnishes the required declaration, he will automatically be entitled to the concessional rate of tax and such declaration which is in accordance with Rule 38-A of the Rules shall be binding on the assessing authority.”

11. It was argued on behalf of the respondents by the learned High Court Government Pleader Sri Dattu that there was no error apparent on the record calling for rectification. According to his submission, the Deputy Commissioner made the order in exercise of the powers conferred by Section 21(2) of the Act and on a scrutiny of the records of assessment. That order was made on the basis of the material and other documents and taking a different view from that of the Assessing Authority and the finding rendered by the Revising Authority could only be reversed in an appeal preferred by the assessee under the Act and not by way of rectification application under Section 25A. The rectification sought for was, therefore, misconceived both on facts and in law. It was therefore contended that the Writ Petition should be dismissed on the above submissions.

12. He also relied upon two decisions of the Madras High Court reported in Kalyan Textiles v. Appellate Assistant Commissioner of Commercial Taxes, Salem . 29 STC 381. and Appellate Asst. Commissioner of Commercial Taxes, Salem v. Puttannagoundar . 35 STC 170. in support of his argument that there was no error apparent in the order of the Revising Authority.

The question, therefore, that arises for consideration in this Writ Petition, is: whether there was an error apparent in the order of the Revising Authority which could be Rectified under Section 25A of the Act?

13. One circumstance which is posed against the petitioner in this case is that the assessee accepted the order of the Deputy Commissioner dated 31st August 1979 made under Section 21(2) of the Act and it did not file an appeal against the said order. It is only after this Court rendered its decision in Bangalore Motor Accessories case on August 21, 1980 that the petitioner sought rectification in the light of this Court's decision.

14. Therefore, the question for further consideration is: whether the law laid down by this Court could form the basis for such a rectification?

15. A few facts would be necessary in order to appreciate the contentions put forward by both the parties.

From the assessment records produced by the learned Government Pleader it is seen that the business of the petitioner mainly related to manufacture and sale of polyurethane foam sheets. The petitioner supplied the said goods to various parties and obtained Form No. 37 from them. Six of such parties included Karnataka Coir Products. The Assessing Officer, on a scrutiny of the declaration filed in Form No. 37 by them accepted and taxed the turnover covered by the declarations under Section 5(3A) of the Act. He did not make any further verification whether the purchasers had used the said goods for manufacture of other goods for sale within the State.

16. Under Section 5(3B) of the Act, any person purchasing the goods in respect of which he has made a declaration, fails to make use of the goods for the declared purpose, the Assessing Authority may impose upon him, by way of penalty, a sum not exceeding 1 ½ times the tax payable on the turnover relating to the sale of such goods at a rate which is equal to the rate prescribed in the Second Schedule.

17. That such a consequence follows for any contravention referred in Section 5(3B), is the law laid down by this Court in Mulgund & Co. v. State Of Karnataka. Therefore, it is a point for consideration whether the Revising Authority was competent to interfere with the order of assessment and withdraw the concessional rate on the ground that the purchaser had not utilised the goods in accordance with the requirement of the provisions of Section 5(3A). The action of the Deputy Commissioner touches his jurisdiction. What was sought by the assessee to be rectified was to restore the order of the Assessing Authority in the light of the law laid down by this Court.

18. The error apparent can be both of fact as well, as law. It is well settled that an order can be rectified on either ground. If the revisional order made under Section 21 in this case was not in conformity with the law laid down by this Court, such an order could be rectified under Section 25A within 5 years from the date of the order in which the mistake had occurred.

19. On the facts of this case, though the assessee had not filed any appeal against the order of assessment he could ask for rectification of the assessment order if it was a case falling under Section 25A of the Act.

20. The two decisions of the Madras High Court relied upon by Sri Dattu have no bearing on the facts of this case whether there was an error apparent or not was based on the facts involved in the said cases.

21. Therefore, I am of the opinion that applying the ratio of this Court in the two decisions reported in 47 STC 54 and 55 STC 339, the order of the Revising Authority, the Depury Commissioner was one which could be rectified under Section 25A of the Act in order to bring it in conformity with the law laid down by this Court subsequent to that order.

22. Therefore, on the facts of the case and having regard to the decisions relied upon by the petitioner, the Writ Petition deserves to be allowed. It is ordered accordingly.

23. The order made by the Deputy Commissioner of Commercial Taxes, Bangalore City Division, Bangalore, dated 15-3-1982 (Annexure-D), is set aside and the order of the Assessing Officer restored.

In the result, the Writ Petition is allowed. Rule issued is made absolute.