S.M Mehta & J.N Sharma, for Petitioner
K.K Sharma, for Revenue
The Judgment of the Court was delivered by
P.K Banerjee, C.J:— In this rule, the petitioner has challenged the notice dt. 19-11-1974 u/s. 7B of the Rajasthan ST Act on various grounds.
2. The petitioner is a firm carrying on business of sale and purchase of the grains including gram at Kota and is registered both under the CST Act and Rajasthan ST Act. The non-petitioner No. 2 is the assessing authority of the petitioner and non petitioner No. 3 served the petitioner with a notice u/s. 7B of the Rajasthan ST Act r/w s. 9(2) of the CST Act. It further appears that the accounting year of the petitioner commences from Dewali every year and the petitioner submitted all its quarterly returns for the Samwat year 2026-27, that is, for the period commencing from October 1969 to October, 1970 the asst. year being 1970–71 under both the Acts. During that period, the petitioner sold gram worth Rs. 3,54,915 between the period commencing from 23-4-1970 to 20-6-1970 during the course of inter-State trade and the petitioner had shown the aforesaid sales in the returns as tax paid under the Rajasthan ST Act at the rate of 2% and it has not attracted any inter-State Sales Tax in view of the notification dated 9-3-1970 and as such inter-State tax was not paid along with the returns. It appears, no final assessment order in respect of the Central Sales Tax has been passed by the assessing authority in respect of the said assessment year as yet. Non-petitioner No. 3 served the petitioner with a notice u/s. 7B of the Rajasthan ST Act on 12-3-1973 and 19-11-1974 informing the petitioner that the petitioner has sold gram worth Rs. 3,54,915 and 5249 bags and he asked the petitioner to show-cause why the Central Sales Tax on the said items may not be realised and further as to why penalty may not be imposed u/s. 16(1)(i) of the Rajasthan ST Act. Being aggrieved by the said notice, the petitioner moved this Court and obtained the present rule. On behalf of the respondent, affidavits have been filed stating therein, inter alia, that although CTO. Circle ‘A’, Kota is the regular assessing authority yet the CTO, Anti-evasion, Kota, acquired the jurisdiction over the dealer on detection of evasion case against the dealer on 30-12-1971 in view of notification dt. 30-10-1967 and later on vide order dt. 8-9-1972 of the Additional Commissioner, Commercial Taxes Department Rajasthan, Jaipur, this case was transferred u/r 52 of the Rajasthan ST Rules, 1955 from the jurisdiction of CTO, Anti-evasion, Kota, to the jurisdiction of Asstt. CTO, Anti-evasion, Kota who issued notice to the dealer u/s. 7B of the Rajasthan ST Act r/w s. 9(2) of the CST Act. It is admitted that the dealers, accounting year is Dewali and during the year 1970–71, the dealer sold gram worth Rs. 3,54,915, between the period from, 23-4-1970 to 20-6-70 during the course of inter-State trade (sales). The sales attracted inter-State Sales Tax at the rate of 1% in view of the notification dt. 9-3-1970 presuming that the dealer will prove to the satisfaction of the assessing authority that the above gram suffered 2% tax under Rajasthan ST Act. It is wrong to say that the above inter-State sales of gram does not attract inter-State Sales Tax in view of the notification dt. 9-3-1970 because this notification applies to the inter-State sales of gram which is pulse and not cereal and that the notification dt. 9-3-1970 is applicable to the inter-State sales of pulses. It is further stated in the affidavit that notices have been issued on the petitioner to show as to why taxes under the CST Act on the sale of gram worth Rs. 3,54,915 and 5249 bags may not be recovered and as to why penalty may not be imposed u/s. 16(1)(i) of the Rajasthan ST Act r/w s. 9(2) of the CST Act. This is, in short, the case of the parties.
3. On behalf of the petitioner, it is contended firstly that CST Act, as obtaining now, is not applicable in respect of the sale in question because the CST Act came into force on 5-1-1957, rather the relevant Act is the Rajasthan ST Act as prevailing on the date and not as subsequently amended. Secondly, it has been contended by Mr. Mehta on behalf of the petitioner that the gunny bags were the part of the same transaction and there was not a separate contract for sale of the gunny bags and., therefore, in the sale of gram, the sale of gunny bags cannot be said to be a different sale transaction. Further it was contended by Mr. Mehta that unless the proceeding u/s. 10 is initiated and completed, S. 7B has no application. Sec. 10 only applies because the petitioner has alreadly filed return for the whole period and, therefore, s: 7B in terms is not applicable. On behalf of the Revenue; Mr. Sharma however contended that CST Act having been amended in 1976 by incorporation therein of s. 9(2)(A) of the. Act, the only amendment subsequent to the coming into force of CST Act and vis a vis all, the amendments of Rajasthan ST Act will be applicable in so far as s. 9(2)(A) is concerned. It is also argued by Mr. Sharma that this legislation CST Act, is legislation by reference and not by incorporation and, therefore, all amendments subsequent to the CST Act came into force in-the State amendments in respect of the ST-Act of the State will be applicable in the case. It was argued by Mr. Sharma that s. 7B only gives a notice if there is evasion and not otherwise and it is for the petitioner to go before the assessing authority to prove that there was no evasion at all and he cannot move this Court at this stage. Mr. Sharma contended that whether the sale of gunny bags is a sale or not is a question of fact and no question of law is involved and, therefore, in the writ jurisdiction, the matter should not be interfered with.
4. Number of cases have been cited at the Bar by both the parties but before I deal with them, I will refer to the question relating to s. 7B and s. 10 of the Rajasthan ST Act.
5. It appears to me that when the petitioner has already filed the return for the whole year, it was necessary for the respondent to go into the question whether there is evasion or not and if it is found that there is evasion or the petitioner has deliberately concealed any transaction of sale or purchase from the books of account or registers u/s. 21, only then he will be penalised u/s. 16(1)(i) of the Act. In so far as s. 10 is concerned is quite clear if the petitioner has already filed the return for the whole year u/s. 7 of the Act the authorities concerned have no option but to proceed on this return till they came to a decision on this question and supposing, after that, it is found that in fact the petitioner has concealed deliberately the sales and purchases of a particular transaction, he can be penalised u/s. 16(1)(i) of the Act. Sec. 7B, in my opinion, is not called for at this stage. It is quite possible for the respondent to proceed against the petitioner u/s-7B of the Rajasthan ST Act at the stage when the information has been received by them and the assessing authority has reason to believe that the dealer has evaded or avoided the tax he may, after giving a reasonable opportunity of being heard, determine at any time and for any period the, taxable turnover of such a dealer, and assess the tax to the best of his judgment. Sec. 7B, therefore, can only be applicable in respect of persons not only those who are registered dealers but also a dealer who is not registered. In so far as registered dealers are concerned, in my opinion, unless a belief is formed that he has evaded or avoided tax then and then only s. 7B is applicable. In the present case, however, the return has already been filed before the Comrrercial Taxes Authority and it is pending. In that view of the matter, in my opinion, it is not for me to go into the other question whether the gunny bags are taxable or not because that will be decided under the proceedings u/s. 10 of the Rajasthan ST Act by the Commercial Taxes Authority concerned. Therefore, in my opinion, the arguments of Mr. Mehta as well as Mr. Sharma on these two grounds need not be elucidated further.
6. In so far as the main question is concerned that whether the CST will be applicable as on, the date when it came into force, that is 51-1957 or the Act of Rajasthan, unamended on that date should be applicable, in my opinion, the question further arises whether the legislation is by reference or by incor-poration. While Mr. Sharma contended that the legislation is by reference to another Act but not by incorporation, Mr. Mehta contended that the legislation is by incorporation and not by reference. The distinction between these two is well settled now. It appears, however, in Shiv Dutt Rai Fateh Chand v. Union of India (1), the Supreme Court has held, that the second point argued on behalf of the petitioners is that sub-s. (2A) of s. 9 of the Act suffers from the vice of excessive delegation of legislative powers. We are not concerned with this point here as in this case this question has not been argued. Their Lordships of the Supreme Court held that what is done by Parliament by enacting sub s. (2A) of s. 9 is that whatever provisions relating to offences and penalties were there in the general Sales Tax Laws of the States would be applicable with appropriate modifications to assessment, re-assessment, collection and enforcement of the provisions of the Act. Legislation by incorporation of provisions of another statute even though passed by different legislature is a well known method of legislation particularly when the scheme of the other statute is similar and such incorporation is relevant and necessary for the purpose of advancing the objects and purposes of the legislation. In view of this statement of law by the Supreme Court, it is no longer open to Mr. Sharma to argue that legislation was not by incorporation but by reference.
7. Next we come to the objects and reasons for the purpose of incorpo ration of s. 9 sub-s. (2A) of the CST Act, which runs as follows:
“Sub clause (c) seeks to insert a new sub-section (2A) in section 9 to provide that provisions relating to offences and penalties (including provisions relating to penalties in lieu of prosecution for an offence but excluding the provisions relating to matters provided for in sections 10 and 13(A) of the generai Sales Tax Law of each State shall with necessary modifications apply in relation to the assessment, re-assessment, collection and enforcement of payment of any tax required to be collected under this Act.”
8. It will be clear, therefore, this section was retrospectively amended and provisions relating to charging of payment of interest in the general Sales Tax Law of the State were made applicable for the purpose of CST laws. Mr. Sharma referred to the State of Tamil Nadu v. K.A Ramulu Chettiar & Co., (2), where their Lordships of the Supreme Court were considering whether the AAC had powers in view of the amended s. (2) of the CST Act which came into force in 1959, had power at the time he decided the appeal of the assessee, to enhance the assessment because of the existence of such power under the Madras General ST Act, 1959 though such a power was not available to him under the 1939 Act which was the Sale Tax Law that was in force in the State of Madras when the CST Act was enacted in 1956. Their Lordships of the Supreme Court held, inter alia, as follows:
“….the powers of the authorities in the State of Madras assessing under the Central Sales Tax Act, are those conferred on them under the Madras General Sales Tax Act, 1939 till the Madras General Sales Tax Act, 1959 came into force and thereafter their powers are those conferred on them by the Madras General Sales Tax Act, 1959. Therefore, the enhancement made by the Appellate Assistant Commissioner was well within his powers.” It appears, in view of this, it is quite clear that 1959 Act was not in force at the time when the General Sales Tax Law in Madras was brought into being and, therefore, their Lordships of the Supreme Court held that the powers of enhancement as in 1959 Act will be applicable in such cases.
9. In a case reported in Auto Pins (India) v. The State of Haryana, (3), their Lordships of the Punjab and Haryana High Court held, inter alia, at page 474, differing with the Madras High Court decisions in different cases, namely D.H Shah v. The State of Madras, (4), State of Madras v. M. Angarpa Chettiar, (5), and K.A Ramulu Chettiar & Co. v. TheState of Madras (6), as follows:
“We are hence of the view that the Parliament was entitled to enact sub-section (3) of Section 9 of the Central Act. That being so, the language of the sub-section is a clear pointer to the fact that the Parliament was adopting the State Legislation with any future modification which may be made therein by the appropriate States.
10. Their Lordships of the Punjab and Haryana High Court however differed with the contrary view taken by the Madras High Court and relied upon the Mysore High Court and M.P High Court. In the said case, however, it must be stated that their Lordships of the Punjab and Haryana High Court were not considering the amendment of subs. (2A) of s. 9 of the CST Act. I have already said in reference to the Supreme Court case that this Legislation is by incorporation and not by reference as argued by Mr. Sharma.
11. The Supreme Court, in a case reported in Internatioral Cotton Cor poration v. Commercial Taxes Officer (7), has held, inter alia, that when the Supreme Court said that the effect of the CST (Amendment) Act, 1969 was to supersede the decision in Yaddalam's case (that is 1965) 16 STC 231), the Sales Tax Authorities were entitled to rectify their earlier rectification orders which were made consequent on the decision in that case. It was correct to say that because the Supreme Court had not, in State of Kerala v. Joseph & Co. (8), considered the argument regarding the conflict between s. 6(1 A) and s. 8(2A), there was no error apparent on the face of record. In 35 STC 1 (at page 7), it has been stated:
“It is only necessary to add that the legislative policy laid down by Parliament in section 8(2)(a) is that inter-State trade should not be discriminated against. If the argument of, the appellants is accepted there will have to be unending series of amendments to this section every time one State or other alters its rate of tax.”
12. In a case reported in Khemka & Co. (Agencies) Pvt. Ltd. v. State Of Maharashtra. (9), it has been stated by the Supreme Court that penalty is not merely sanction. It is also not merely adjunct to assessment. It is not merely consequential to assessment. It is not merely machinery. Penalty is in addition to tax and is a liability under the Act. Penalty is within assessment proceedings just as tax is within assessment proceedings when the relevant Act by substantive charging provision levies tax as well as penalty. The Central Act contains specific provisions for penalty. These are the only provisions for penalty available against the dealers under the Central Act. The Central Act is a self-contained code which by the charging section creates liability for, tax and which by other sections creates a liability for penalty and imposes penalty. Sec. 9(2) of the Central Act creates the State authorities as agencies to carry out the assessment, re-assessment, collection and enforcement of tax and penalty payable by a dealer under the Central Act. The mere fact that there is machinery for assessment, collection and enforcement of tax and penalty in the State Act does not mean that the provision for penalty in the State Act is treated as penalty under the Central Act. The meaning of penalty under the Central Act cannot be enlarged by the provisions of machinery of the State Act incorporated for working out the Central Act.
13. In the Collector of Customs, Madras v. Nathella Sampathu Chetty (10), a case under the Sea Customs Act, 1878 and Foreign Exchange Regulation Act, 1947, the Supreme Court was considering whether the constitutional validity of Art. 19(1)(f) and (g) was not saved by cls. (5) and (6) of Art. 19. It was so held at p 830:
“Proceeding therefore on the basis that the impugned provision was constitutionally valid we have still to consider two further points on the basis of which learned Judge of the High Court upheld the case of the respondent even on the assumption that s. 178A was constitutionally valid. The first of these grounds was that the impugned s. 178A which has been introduced by the Act of 1955 (Act 21 of 1955) is not attracted to the prohibitions enacted by s. 23A of the Foreign Exchange Regulation Act. The reasoning on which this conclusion was reached was that s. 23A, whose terms we have set out; when enacted in 1952 in effect incorporated into the provisions of the Foreign Exchange Regulation Act all the relevant provisions of the Sea Customs Act 1878, as that enactment stood in 1952, with the result that any subsequent amendments to the Sea Customs Act did not and could not effect, modify or enlarge the scope of the incorporated Sea Customs Act which had become part of the Foreign Exchange Regulation Act……”
14. Answer to this was given at page 834:
“This conclusion is reinforced by a comparisiofl of the usual and normal or recognised formulae generally employed to effect incorporation such that changes in or even repeal of the incorporated statute is not intended per se to affect the operation of the incorporating legislation. It is sufficient to pick out a few of the well known formulae employed which would indicate that normally the draftman does not leave his intentions in dfcubt……”
15. Therefore, in my opinion, this case does not at all support Mr. Sharma's contention that this is a legislation by reference and not by incorporation.
16. In Craies on Statute Law, Sixth Edition, at page 416, the Id. author has said:
“Sometime an Act of Parliament, instead of expressly repealing the words of a section contained in a former Act, merely refers to it, and by relation applies its provisions to some new state of things created by the subsequent Act. In such a case the “rule of construction is that where a statute is incorporated by reference into a second statute, the repeal of the first statute by a third does not affect the second.” Again, at p. 417, the Id. author has said:
“The court adopted the principle laid down in R.V Merionethshire, “I agree” said Blackburn J, “that the authorities show that the repeal of the original Act does not of itself repeal provisions as incorporated in a subsequent Act, and without authorities it is but common sense that, where a second Act in effect re-enacts an older Act, the second Act must be expressly repealed as well as the older Act, otherwise it must be taken to remain in force”. Mr. Sharma referred to Western Coalfields Limited v. Special Area Development Authority (11), in order to highlight the distinction, between the legislation by reference and legislation by incorporation. In paragraphs 16 and 17, the Supreme Court has held:
“The principle, broadly, is that where a statute is incorporated by reference into a second statute, the repeal of the first statute by a third does not affect the second C see Clarks v. Bradlaugh). Likewise, logically, where certain provisions from an existing Act have been incorporated into a subsequent Act no addition to the former Act, which is not expressly made applicable to the subsequent Act, can be deemed to be incorporated in it (see Secretary of State for India in Council v. Hindustan Cooperative Insurance Society Ltd.). But these rules are not absolute and inflexible. In the case-last cited, the Privy Council qualified its statement of the law by saying that the principle, that an amendment of the first Law which is not expressly made applicable to the subsequent incorporating Act cannot be deemed to be incorporated into the second Act, applies “if it is possible for the subsequent Act to function effectually without the addition” (IA page 267). Besides, as held by a Constitution Bench of this Court in the Collector of Customs, Madras v. Nathella Sampathu Chetty (supra) the decision of the Privy Council could not be extended too far so as to cover every case in which the provisions of another statute are adopted by absorption (see SCR page 837). Finally, in State Of Madhya Pradesh v. M.V Narasimhan this Court held, after an examination of the relevant decisions, that the broad principle that where a subsequent Act incorporates provisions of a previous Act, then the borrowed provisions become an integral and independent part of the subsequent Act and are totally unaffected by any repeal or amendment in the previous Act, is subject to four exceptions, one of which is that the principle will not apply to cases “where the subsequent Act and the previous Act are supplemental to each other”.
“Applying these principles, we are of the opinion that in the instant case, subsequent amendments made to the Municipal Corporation Act and the Municipalities Act will also apply to the power of taxation provided for in section 69(d) of the Act of 1973. The Act of 1973 did not, by section 69(d), incorporate in its true signification any particular provision of the two earlier Acts. It provides that, for the purpose of taxation, the special Area Development Authority shall have the powers which a Municipal Corporation or a Municipal Council has under the Madhya Pradesh Municipal Corporation Act, 1956 or the Madhya Pradesh Municipalities Act, 1961. The case therefore is not one of incorporation but of mere reference to the powers conferred by the earlier Acts. As observed in Nathella Sampathu Chetty, there is a distinction between a mere reference to or a citation of statute in another and an incorporation which in effect means the bodily lifting of the provisions of one enactment and making them part of another, so much so that the repeal of the former leaves the latter wholly untouched. Section 69(d) of the Act of 1973 must accordingly be read to mean that respondent 1 shall have all the powers of taxation which a Municipal Corporation or a Municipal Council has for the time being, that is to say, as the time when respondent 1 seeks to exercise those powers.”
17. In view of the fact, as already stated that the Supreme Court in a later case under the Sales Tax itself is of the opinion that it is a legislation by incor poration, we are not concerned with this distinction between legislation by incor poration or legislation by reference.
18. Coming now to the facts of the pesent case, it is quite clear that in view of the Supreme Court decision and in view of the amendment and objects and reasons of s. 9(2A) of the CST Act, that the petitioner cannot be fastened with any liability u/s. 7B of the Rajasthan ST Act which came into force on 9-5-1964 as amended in 1969. Mr. Sharma wanted to argue that even if it is held, as I have already held here, that the legislations is by incorporation, the respective law as it stood in 1969 should be made applicable. In my opinion, in view of the Supreme Court decision, as hereinbefore stated that on 5-1-1957 the CST Act was enacted and in view of the objects and reasons of s. 9(2A) and the purpose for which it was brought into being, it is clear to me that s. 7B cannot be taken advantage of by the taxing authorities in 1969 and even thereafter. It appears to me, however now when the proceeding is pending before the Commercial Taxes Authorities, it is open to them to proceed u/s. 10 of the RST Act. I have not decided whether the gunny bags will be a part of the same transaction or is a sale apart from the others, because, as is argued before me by Mr. Sharma, this is a question to be decided by the Commercial Taxes Authorities and not under Article 226 of the Constitution. In my opinion, the notice u/s. 78 of the Rajasthan ST Act must be quashed and set aside. The assessing authorities may proeeed in accordance with law u/s. 10 of the Rajasthan ST Act and may come to any finding, without being prejudiced by this judgment.
19. To the extent indicated above the rule is made absolute but without prejudice to any right the respondents may have to assess the petitioner u/s. 10 and 16(1)(i) of the Rajasthan ST Act. There will be no order as to costs.
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