Subramonian Poti, A.C.J:— These cases have come up before the Full Bench on a reference by a Division Bench of this Court.

2. I.T.R No. 84 of 1978 arises out of the assessment under the Income-tax Act for the assessment year 1974-1975 against a firm. The relevant accounting year is 1-4-1973 to 31-3-1974. The method of accounting is mercantile. The business of the assessee is one of processing cashew nuts. Up to 1-9-1970 the assessee was directly importing cashewnuts from outside India. Cashewnuts were liable to be taxed at the point of last purchase in the State. Since the purchases up to 31-8-1970 were in the course of import the assessee was not being taxed on such purchases. From 1-9-1970 the Cashew Corporation of India alone was permitted to import cashewnuts. The assessee and other traders like the assessee had to purchase from the Cashew Corporation. Thereupon the assessee became liable to pay salestax on the purchase of cashew from 1-9-1970. It appears that the cashew traders had taken up the question of liability to pay such tax with the Government and pending a decision thereon were not paying the tax. The Government took no action for recovery. This attitude of the Government was followed up by a Government order dated 12-10-1973, an order exempting such purchases under S. 10 of the Kerala General Sales-tax Act. By that order the Government, in exercise of the powers under S. 10 of the Sales Tax Act, made “an exemption in respect of the tax payable under S. 5 of the said Act by the cashew manufacturers in the State on the purchase turnover of cashewnuts imported from outside India through the Cashew Corporation of India for the period from 1st September, 1970 to the 30th September, 1973”. The Explanatory Note attached to this order explained that the Government considered that purchase of cashewnuts with shell imported from outside through the Cashew Corporation of India by cashew manufacturers in the State as exempted from salestax payable under S. 5 for the period from 1st September, 1970 to 30th September, 1973 and the notification was intended to achieve the above object. It appears that the Government had second thoughts on this matter. Soon after the Government order on 12-10-1973, a cancellation order was passed by G.O dated 9-11-1973. This order was purportedly made in exercise of the power conferred under sub-section (3) of S. 10 of the Salestax Act and purported to cancel the notification issued on 12-10-1973 published in the gazette dated 23-10-1973. The Explanatory note mentioned that the Government had, since passing the order, reconsidered the matter in all its aspects and were convinced that the said notification should be cancelled.

3. Thus the notification dated 12-10-1973 published on 23-10-1973 was alive only for a few days. The accounts of the assessee were closed on 31-3-1974. In such accounts he claimed for the accounting year ended 31-3-1974 a deduction of Rs. 6,38,659/- as purchase tax payable for the year 1970-1971, 1971-1972 and 1972-1973. By that time the assessment for the years ended 31-3-1972 and 31-3-1973 had not been completed and the assessee has claimed the deductions in respect of these years in the assessments for these years. These were allowed. For the year ended 31-3-1974 also the claim stood allowed by the order of the Appellate Assistant Commissioner. Therefore it is only a sum of Rs. 71,005/- debited as purchase tax for the period from 1-9-1970 to 31-3-1971 that is in dispute. Whether the purchase tax payable in the above said period could be debited in the accounting period ending on 31-3-1974 was the only question that had to be decided by the Tribunal. The Tribunal found by its order that the liability to pay purchase tax was exempted by the Government notification which was later on withdrawn and since the date of withdrawals fell within the relevant accounting year the liability in respect of the purchases made in the earlier accounting year ended 31-3-1971 actually arose during the accounting year ended 31-3-1974. It is the correctness of this view that was the subject of the question referred namely:

“Whether, on the facts and circumstances of the case the assessee is entitled to a deduction of the liability towards purchase tax in respect of purchases made during the accounting year ended 31-3-1971 in the assessment year 1974-75?”

4. In ITR. No. 33 of 1978 a similar question arises. There the assesses is an individual. There again the question concerns the purchase tax on raw nuts purchased from the Cashew Corporation from 1-9-1970. The assessee was keeping books of account on mercantile basis which books were closed on 30th June every year. In respect of the accounting years which closed on 30-6-1971 and 30-6-1972 the assessee did not make any provision towards the purchase tax liability under the impression that there will be no payment called for. But since by the time he could finalise the books of accounts for the year ended 30-6-1973 he had knowledge of the cancellation notification dated 9-11-1973 he made provision for purchase tax for that year. The question for reference concerned only the first two years that is that ending on 30-6-1971 and on 30-6-1972. In respect of these periods the claim was made in the accounting year corresponding to assessment year 1975-1976 In this case the Appellate Tribunal took the view that the liability for the purchase tax arose for the first time when the notification was cancelled in November, 1973. So it held that November, 1973 was the point of time when the liability arose for payment of purchase tax from 1-9-1970 onwards and that being so the deduction by the assessee who kept his books under the mercantile basis could be claimed for the accounting year in which 9th November, 1973 fell. It is the correctness of this view that is subject of reference in ITR. No. 33 of 1978 the question referred being—

“Whether, on the facts and in the circumstances of the case, the assessee is entitled to a deduction of the liability towards purchase tax in respect of the purchases made during the accounting years ended on 30-6-1971 and 30-6-1972 in the assessment year 1975-76?”

5. The plain question calling for answer in these cases concerns the time at which the liability to pay salestax is incurred by an assessee. That in both the cases the assessee is keeping the accounts on the mercantile system and therefore it is the time at which liability is incurred that is relevant is not in dispute. But according to the assessees in both these cases though they were liable under the charging provision in the General Salestax Act to pay purchase tax on the last purchases from 1970, such liability was really not being enforced that indicated that it was not intended to be enforced and that intention is further evidenced by the exemption notification dated 12-10-1973 published in the gazette dated 23-10-1973. Therefore it is said that when once the said notification was passed it operated to save the assessee from liability to pay tax from 1-9-1970 and it was only when by the subsequent notification dated 9-11-1973 the earlier notification was cancelled that liability arose for the first time. It is therefore said that consequently such liability had to be debited in the books of account only then.

6. Learned counsel Sri. Sukumaran submitted that though this court had earlier taken the view that executive power under a statutory provision could not be exercised retrospectively that view expressed by a Full Bench of this Court in Sreedharan Pillai v. State of Kerala, 1973 KLT. 151 can no longer be said to be right in view of the decision of the Supreme Court in Government of A.P v. D.J Rao, (1976) 4 SCC 226 : AIR. 1977 SC 451. Retrospectivity of operation by reason of the exercise of power under Rule 47 of the Andhra Pradesh State and Subordinate Service Rules was upheld in the decision. We do not think that this is of any material relevance in this case, for, the question before us is not whether the exemption notification could retrospectively operate. It was a notification which operated to exempt from tax transactions of a specific period namely, from 1st October, 1970 to 30th September, 1973, a period which had expired even before the issue of the notification. Its very character was to exempt certain sales of a previous period. The question of retrospectivity does not arise in such a case. Under the salestax law of the State the liability to pay tax arises in the year in which the transactions take place. For the period from 1-9-1970 to 31-3-1973 the assessee had effected purchases. Such, purchases were liable to tax under the law as it stood then. The liability to tax arose under such law. That the Government took no steps for recovery of tax is irrelevant. That possibly pressure was brought to bear upon the Government by the trade not to enforce recovery of tax on such sales is also irrelevant. The liability having arisen in the year in which the transaction took place provision had to be made for such liability. If the assessees had not made provision in that year but such provision was made in a later year that would not mean that liability arose only in such later year. If by an exemption notification in a subsequent year the transactions of the earlier period are exempt from tax that would only mean that the existing liability is no longer in force by reason of the notification of exemption. In the case of the assessees before us the liability to pay tax arose in the years in which the transactions of purchase took place, the liabilities had to be provided for in the respective years, when the exemption notification was published in October, 1973 such liability ceased to be operative, but on the later cancellation of such exemption notification by the notification of 9-11-1973 the liability revived. If that be so it cannot be said that the liability arose for the first time on the cancellation notification of 9-11-1973.

7. The Supreme Court had in Kedarnath Jute Mfg. Co. Ltd. v. C.I.T, (1971) 82 ITR 363 considered the liability of an assessee who had followed the mercantile system of accounting. The court held that although the liability to pay tax could not be enforced till quantification was effected by assessment proceedings, the liability for payment of tax was independent of the assessment. The liability for payment of sales tax had accrued during the year of assessment even though it had to be discharged on a future date Though an attempt was made by the Calcutta High Court in C.I.T v. Nathmal Tolaram, (1973) 88 ITR. 234 to take a different view explaining this decision of the Supreme Court, this Court in L.J Patel & Co. v. C.I.T (1974) 97 ITR. 152 rightly disagreed with the approach in that decision. Adopting the view expressed in the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. C.I.T, (1971) 82 ITR. 363 this Court held that the liability of a past year cannot be taken into account for computing the income of a subsequent year.

8. In this view we think that the Tribunal was in error in holding that the liability to pay tax for the period from 1-9-1970 up to 31-3-1973 in one case and the assessment year ending on 30-6-1971 and that ending on 30-6-1972 in the other case arose only in the accounting year in which cancellation notification of 9th November, 1973 was issued. We, therefore answer the questions referred to us in the negative, that is, in favour of the Department and against the assessees.

9. A copy of this Judgment under the seal of the High Court and signature of the Registrar shall be sent to the Income Tax Appellate Tribunal, Cochin Bench under S. 260(1) of the Act.