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Commissioner Of Sales Tax, Orissa v. Sri Jagatbhandhu Mohanty
Summary of Opinion — G.C. Das, J. (Reference by Member, Sales Tax Tribunal, Orissa)
Factual and Procedural Background
The Member, Sales Tax Tribunal, Orissa, referred two questions to the Court under section 24(1) of the Orissa Sales Tax Act. The questions concerned (1) whether a transferee of a business from a registered dealer can be held liable to assessment and payment of tax for periods prior to the date of transfer for which the business remained unassessed and the tax unpaid by the transferor (question 1), and (2) whether a transferee within the meaning of section 19(1) cannot be made liable to pay sales tax from the date of the transfer without determination of his liability under section 4 as contemplated by section 19(2) (question 2).
The factual matrix was that one Banambar Sahu Chaudhury, a registered dealer running a hotel named "City Restaurant", transferred the business in its entirety to the dealer-assessee (the transferee) on 16 June 1953. The assessee did not file returns for the quarters ending 30 June 1953 to 31 December 1954. The assessing officer proceeded under section 12(4) of the Orissa Sales Tax Act and estimated gross turnover for the three quarters, applied rule 65, and assessed the assessee. The Assistant Collector confirmed the assessment on appeal. The Tribunal found that the transfer had been of the entire business on 16 June 1953, but held that the transferee was only liable to pay any sales tax unpaid by the transferor up to the date of transfer and was not liable to be assessed and taxed under section 19(1). The Tribunal annulled the assessment for the quarter ending 30 June 1953 and set aside assessments pending proper determination under section 4, directing fresh assessment according to law.
Legal Issues Presented
- Whether, under sub-section (1) of section 19 of the Orissa Sales Tax Act, 1947, a transferee of a business from a registered dealer can be held liable to assessment and payment of tax in respect of the said business for periods prior to the date of transfer for which the business remained unassessed and consequently the tax thereon remained unpaid by the transferor.
- Whether a transferee within the meaning of section 19(1) of the Act cannot be made liable to pay sales tax from the date of the transfer without determination of his liability under the provisions of section 4 of the Act as contemplated under section 19(2) of the Act.
Arguments of the Parties
Tribunal's Findings (as recorded in the reference)
- The Tribunal found that the transfer of the business was in its entirety to the assessee on 16 June 1953.
- The Tribunal held that although the transferee remains liable for any sales tax unpaid by the transferor up to the date of transfer, the transferee is not liable to be assessed and taxed under section 19(1) of the Act for prior periods.
- The Tribunal held that, except for liability to pay tax unpaid by the transferor till the date of transfer, the transferee's liability from the date of transfer must be determined under section 4 as required by section 19(2).
- Because there had been no proceeding against the transferor to quantify tax unpaid by the transferor up to the date of transfer, the Tribunal annulled the assessment for the quarter ending 30 June 1953 and set aside other assessments, directing fresh assessments according to law.
Assessee's Arguments (as recorded)
- Mr. Bhattacharjee, counsel for the assessee, relied upon the Calcutta High Court decision in In re Recols (India) Ltd., arguing that there is some difference between the amount of tax and the sum deductible after final assessment — implying distinctions in how "due" and "payable" might operate.
- The opinion records that this submission was considered and that Sahai, J.'s observations in the Patna decision (In the matter of Bihar Bolts and Rivets and Engineering Works Ltd.) addressed distinctions between sales tax and income tax and the timing of liability, ultimately treating tax as payable immediately upon sale (with returns and deposit obligations following).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| In the matter of Bihar Bolts and Rivets and Engineering Works Ltd. (Patna High Court) | Comparison of sales tax provisions with income-tax provisions; principle that sales tax becomes payable immediately on sale and differs materially from income-tax timing and variability. | The Court relied on the Patna decision's analysis to emphasize that sales tax is payable upon sale (and a registered dealer must deposit the amount and state it in the return), supporting the view that section 19(1) deals with registered dealers and the timing of liability for admitted tax in returns. |
| In re Recols (India) Ltd. (Calcutta High Court) | Interpretation of terms "due" and "payable" and the relationship between amounts stated/paid prior to final assessment and adjustments on assessment. | The Court noted the assessee's reliance on Recols but observed that the Patna decision considered Recols and differentiated approaches by different judges; the Court accepted the Patna decision's treatment that to the extent liability is admitted in a return the amount is payable prior to submission and deposit into the treasury. |
Court's Reasoning and Analysis
The Court set out the statutory scheme to explain its reasoning. Key statutory provisions and their roles, as described in the opinion, include:
- Section 4: the charging section — establishes how liability to tax arises.
- Section 5 and rate provision: prescribes the rate (one quarter of an anna in the rupee on taxable turnover).
- Section 11(1) and Rule 20 of the Orissa Sales Tax Rules, 1947: returns — registered dealers must furnish returns (Form IV) within one calendar month of the expiry of each quarter; unregistered dealers require notice under s.11(1).
- Form IV obligations: dealer must state gross turnover (clause C), taxable turnover (clause G), and tax payable (clause H); registered dealers must deposit the tax in the treasury and produce the receipt with the return (s.13(2)).
- Section 12: assessment provisions — s.12(1) where Collector is satisfied with returns; s.12(4) deals with assessments (used by assessing officer for registered dealers when returns are not filed or accepted), and s.12(5) deals with unregistered dealers (the Court emphasized the distinction between s.12(4) and s.12(5)).
- Section 13: payment and recovery; s.13(4) (as quoted) concerning amounts due where returns are furnished without receipt showing full payment, and amounts assessed under subsections of section 12, less amounts already paid.
- Section 19: specifically s.19(1) establishes that any tax payable in respect of a business and remaining unpaid at the time of transfer shall be payable by the transferee as if he were the registered dealer; s.19(2) addresses unregistered transferees and deems the transferor's gross turnover to be the transferee's for purposes of fixing liability under s.4.
From these provisions the Court drew the following analytical conclusions:
- Section 19(1) applies to registered dealers; section 19(2) applies to unregistered dealers. The Court agreed with the Tribunal on that categorical distinction.
- The nature of sales tax — as explained in the Patna decision — is that sales tax becomes payable immediately upon sale and the registered dealer is required to state and deposit the tax when filing returns. Thus, when a registered transferor has filed a return admitting tax for a period but assessment has not been made, the transferee is liable to pay the admitted tax (as shown in Form IV) even though final assessment remains pending.
- Conversely, if the registered transferor had not filed the return, the transferee-dealer cannot be made liable to pay for the pre-transfer period unless and until the transferor is assessed and the unpaid tax is quantified — i.e., the transferee is not automatically liable to pay amounts that have not been admitted in a return or quantified by assessment.
- For question 2, where the transferee is effectively an unregistered dealer, the proper assessment procedure is under s.12(5) (which deals with unregistered dealers) and not s.12(4) (which concerns registered dealers). The Court thus required that assessments of unregistered transferees be made under the statutory subsection appropriate to unregistered dealers.
Holding and Implications
Core Rulings:
- Question 1: Answered in the affirmative, but subject to conditions: if the transferor-registered-dealer had filed a return admitting the tax (Form IV), the transferee-dealer is liable to pay that admitted tax even if no assessment has been completed; if no return had been filed by the registered transferor, the transferee-dealer is not liable to make payment for pre-transfer periods without the transferor first being assessed so the unpaid tax can be quantified.
- Question 2: Also answered in the affirmative, with the qualification that assessment of a transferee (in the context contemplated) must be made under subsection (5) of section 12 (which deals with unregistered dealers) and not under subsection (4) (which relates to registered dealers).
Implications and direct consequences:
- The Court accepted the reference and affirmed the Tribunal's core view that section 19(1) and 19(2) apply respectively to registered and unregistered transferees, but clarified the conditions under which a transferee of a registered dealer becomes liable for pre-transfer taxes.
- The decision directs that where a transferor has filed and thereby admitted tax in return, the transferee must discharge that admitted tax; where no return was filed, the transferee's liability for pre-transfer tax requires prior assessment of the transferor to quantify unpaid tax.
- Assessments for unregistered transferees must be made under s.12(5) and not s.12(4), affecting the procedural route for assessing liability in such cases.
- The opinion ordered acceptance of the reference and recorded that there would be no order as to costs; it answered the reference accordingly.
- No broader novel precedent or expansion of law beyond interpretation and application of the cited statutory provisions and existing case law was asserted by the Court; the ruling clarifies application of existing provisions to the facts described.
Disposition: Reference accepted; questions answered as above; no order as to costs.
G.C Das, J.:— The following two questions were referred to this Court by the Member, Sales Tax Tribunal, Orissa, under sub-section (1) of section 24 of the Orissa Sales Tax Act:—
“(1) Whether under the provision of sub-section (1) of section 19 of the Orissa Sales Tax Act, 1947, a transferee of a business from a registered dealer cannot be held liable to assessment and payment of tax in respect of the said business for periods prior to the date of transfer for which the business remained unassessed and consequently the tax thereon remained unpaid by the transferor?
(2) Whether a transferee within the meaning of section 19(1) of the Act cannot be made liable to pay sales tax from the date of the transfer without determination of his liability under the provisions of section 4 of the Act as contemplated under section 19(2) of the Act?”
2. The facts giving rise to this reference are these: The dealer-assessee was taxed under section 12(4) of the Orissa Sales Tax Act for the quarters ending on 30th June, 1953, to 31st December, 1954. One Banambar Sahu Chaudhury was a registered dealer under the Orissa Sales Tax Act.
3. He was running a hotel under the name “City Restaurant”. He transferred the business to the dealer-assessee (hereinafter referred to as “the assessee”) on 16th June, 1953. The assessee, however, did not return his turnovers in respect of the quarters mentioned above. Treating the assessee liable as a registered dealer, the assessing officer started a proceeding under sub-section (4) of section 12 of the Act against him and determined his gross turnover at an estimated amount of Rs. 2,700 for all the three quarters. Applying the old rule 65, he determined the taxable turnovers and assessed him accordingly. On appeal, the Assistant Collector confirmed the assessment. There was some controversy as to whether the entire business was transferred or not. The Tribunal came to the conclusion that the transfer of the business was in its entirety to the assessee on 16th June, 1953. After finding this, the Tribunal held that the assessee though remaining liable for any sales tax that remained unpaid by the transferor up to the date of transfer, is not liable to be assessed and taxed under section 19(1) of the Act. He also held that except for the assessee's liability to pay the amount of tax that remained unpaid by the transferor till the date of transfer, the liability of the transferee from the date of transfer is to be determined under the provisions of the charging section 4 as enjoined under section 19(2) of the Act. Thus, in the absence of a proceeding against the transferor for assessment, quantification of the demandable sales tax and ultimate determination of the amount of tax that remained unpaid by the transferor till the date of transfer, the Tribunal annulled the assessment for the quarter ending on 30th June, 1953. In the absence of determination of the liability of the transferee-dealer-assessee under the provisions of section 4 of the Orissa Sales Tax Act, the Tribunal set aside the assessments, and directed fresh assessment according to law. The Tribunal appears to have taken the correct view of the law, but he seems to have gone wide off the mark. In that connection, I would like to state the scheme of the Act. Section 4 is the charging section. Thereafter section 5 deals with the rate of tax and sub-section (r) lays down that the tax payable by a dealer under this Act shall be levied at the rate of one quarter of an anna in the rupee on his taxable turnover. Returns are to be filed under section 11. Sub-section (1) thereof requires the unregistered dealers to be served with a notice. It is however, not necessary to serve a notice on the registered dealers. It is incumbent upon the registered dealers to furnish returns. In this connection, reference may be made to rule. 20 of the Orissa Sales Tax Rules, 1947. According to rule 20, every registered dealer within one calendar month of the expiry of each quarter of a year, shall furnish to the Assistant Sales Tax Officer or the Sales Tax Officer, as the case may be within whose jurisdiction his place or places of business are located, a return in Form IV showing particulars in respect of the sales tax payable by him. Form IV prescribes the form for return of sales tax payable by the dealer. In clause (C) of the form the dealer has to state the gross turnover on sales which have taken place in Orissa. Then under clause (G) he has to state the balance being the taxable turnover. Thereafter clause (H) is important under which the dealer has to state the tax payable by him calculated to the nearest anna. After the return is filed, assessment is made under section 12 of the Act. Under sub-section (1), if the Collector is satisfied that the return is correct and complete, then he proceeds to make the assessment. Section 13 thereafter deals with the payment and recovery of the tax and penalty, if any. Under subsection (1) of section 13, tax payable under the Act shall be paid in the manner prescribed thereunder. Sub-section (2) lays down that before any registered dealer furnishes the returns required by sub-section (1) of section 11, he shall in the prescribed manner, pay into a Government treasury the full amount of tax due from him under the Act according to such returns and shall furnish along with the returns, a receipt from such treasury showing the payment of such amount. We are not very much concerned with sub-section (3). Sub-section (4) lays down that the amount of tax: (a) due where the returns are furnished without receipt showing full payment thereof, or (b) assessed under subsections (1), (2), (3) and (4) of section 12 less the sum, if any, already paid by the dealer in respect of the said period (sic). Sub-section (5) speaks about the penalty and sub-section (6) lays down that the amount of tax together with the penalty, if any, which remains unpaid after the date specified in the notice issued under sub-section (4) or after the date specified in the notice under sub-section (5), shall be recoverable as an arrear of land revenue. Thereafter comes section 19. Subsection (1) of section 19 speaks about the tax payable by a transferee of a business and it states that any tax payable in respect of such business remaining unpaid at the time of the transfer shall be payable by the transferee as if he were the registered dealer within 30 days Of the transfer. Sub-section (2) deals with unregistered dealers and it lays down that for the purpose of fixing liability of a transferee-unregistered dealer under section 4 the gross turnover of the business of the transferor shall be deemed to be the gross turnover of the business of the transferee.
4. The Tribunal is right in his view, as I had stated earlier, that section 19(1) deals with registered dealers whereas section 19(2) deals with unregistered dealers. Reliance was placed on a case of the Patna High Court reported in In the matter 0.Bihar Bolts and Rivets and Engineering Works Ltd.1 That was a case in which the provisions of the Bihar Sales Tax Act were under consideration. It appears that the provisions of the Bihar Sales Tax Act are similar to the provisions of the Orissa Sales Tax Act. The Tribunal appears to have overlooked that portion of the judgment where the learned Judge was dealing with the difference between the Bihar Sales Tax Act and the Indian Income-tax Act. Sahai, J., in unmistakable terms had observed that there are two important points of difference between the Bihar Sales Tax Act and the Indian Income-tax Act, 1922. (1) Whereas income-tax for the assessment year is assessed on the income of the previous year, sales tax becomes liable to be paid immediately after each sale is effected though, for facility of computation and payment of tax, provision has been made for the filing of returns at the expiry of each quarter. (2) Whereas rates of income-tax vary in accordance with the amount of income and therefore no one can be certain of what income-tax he has to pay at least until the accounting year expires, the rate of sales tax does not vary on the amount of taxable turnover and a dealer, therefore, can always be certain of what sales tax he has to pay as soon as he effects a sale. In other words, sales tax becomes payable immediately after a sale is transacted. Mr. Bhattacharjee, learned counsel on behalf of the assessee sought to rely upon a judgment of the Calcutta High Court in the case of In re Recols (India) Ltd.2 He argued that there is some difference between the amount of tax and the sum deductible after the final assessment is made. That decision came to be considered by Sahai, J., in In re Bihar Bolts and Rivets and Engineering Works Ltd. and the learned Judge was of opinion that in In re Recols (India) Ltd., Chakravartti, C.J, does not seem to have interpreted the words “due” and “payable” separately. But Sinha, J., interpreted the two words separately. The provisions of the Bengal Finance (Sales Tax) Act, 1941, were under consideration in that case, but it appears that those provisions were somewhat similar to the provisions of the Bihar Act. Eventually, he came to the conclusion that it is, therefore, clear that to the extent of liability admitted in a return the amount of tax is payable before the dealer submits that return. Thus, there is no doubt that the tax is payable since the sale is transacted and it is incumbent upon the registered dealer to state that amount in the return when submitted. Not only that, it is also enjoined under the Act that the dealer is to deposit that amount into the Government treasury. When the assessment is made, the sum which has been deposited into the Government treasury has to be deducted from the total amount of tax. That is the reason why the expression “the sum” has been used in clause (b) of sub-section (4) of section 13 of the Act.
5. Thus, while answering question No. 1 in the affirmative, I would like to add that it must be subject to certain conditions. If the transferor-registered-dealer had filed a return and no assessment had been made, even then the transferee-dealer is liable to pay the admitted tax as in Form No. IV. If, on the other hand, no return had been filed by the registered dealer, the transferee-dealer is not liable to make payment without the transferor-dealer being assessed.
6. With regard to question No. 2 our answer must also be in the affirmative. But there also we want to make it clear that the assessment must be made under sub-section (5) of section 12 and not under sub-section (4) of the same section, because sub-section (4) clearly deals with registered dealers whereas sub-section (5) deals with unregistered dealers.
7. With these observations, we accept the reference, but there would be no order for costs.
8. R.K Das, J.—I agree.
9. Reference answered accordingly.
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