Citation Codes

Equivalent Citations

citation codes

Case Number

Writ Petitions Nos. 252 and 253 of 1957

Judges

Rajagopalan
Ramachandra Iyer, JJ.

Acts

Madras General Sales Tax Act, 1939 (Madras Act IX of 1939) (hereinafter referred to as the principal Act),
rules 14-A and 15(2) of the General Sales Tax Rules. A fortiori rule 12
Validation of Assessments) Act, 1954 (Madras Act No. XVII of 1954).
Rules 14-A and 15(2) of the Madras General Sales Tax Rules
provisions of the Madras General Sales Tax Act,
section 3(1)(b) effected by Act XV of 1949
rule 7, rule 8 or sub-rule(4) of rule
SECTION 3 INTEREST ACT
Madras General Sales Tax Act.
section 17 of Act XV of 1956
sub-rule (2) or (3) of rule 11,
provisions of rule 12
rule 14-A, 15(2)
9. Rule 12,

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Smart Summary

Summary of the Opinion — Ramachandra Iyer, J.

Factual and Procedural Background

These petitions under Article 226 challenge the first respondent's attempts to enforce payment of portions of sales tax that the petitioners, who are registered automobile dealers in Madurai, had earlier collected from their customers but which were subsequently refunded to them.

For the assessment years 1948–49 and 1949–50 the petitioners were provisionally assessed and paid sales tax. The Deputy Commercial Tax Officer, in the final assessments, included the sales tax collected from customers within the petitioners' assessable turnover, resulting in additional tax assessments of Rs. 4,927-2-6 (1948–49) and Rs. 13,369-9-3 (1949–50). Those amounts were appropriated out of sums paid on provisional assessment.

The petitioners disputed liability to tax on the sales tax collected. The Sales Tax Appellate Tribunal held that such collections were not part of turnover and directed refunds of the amounts representing tax on the sales tax collected. While revision to this Court was pending, refund vouchers in Form C were issued on 2 March 1953 and 7 May 1953, accompanied by an undertaking from the petitioners to repay the refunds if the High Court set aside the Tribunal's orders. The High Court affirmed the Tribunal's decision in January 1954.

The position in the earlier decisions followed the decision in Deputy Commissioner of Commercial Taxes v. Krishnaswami ([1954] 5 S.T.C. 88; 1954 2 M.L.J. 151), which held that amounts collected by a registered dealer from consumers by way of sales tax should not be included in the dealer's turnover and should not be taxed again.

Subsequent to the High Court's affirmance, the Madras Legislature enacted the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954 (Madras Act No. XVII of 1954) which (relevantly) by section 2 deemed amounts collected by a dealer as tax under the principal Act before 1 April 1954 to have formed part of his turnover, and by section 3(1) declared valid past assessments and made void any findings, orders, judgments or decrees to the contrary (subject to a proviso omitted as immaterial).

Relying on Act XVII of 1954 the Deputy Commercial Tax Officer issued notices in Form B on 5 August 1956 calling upon the petitioners to remit the refunded amounts. The petitioners impugned the validity of those notices by these petitions under Article 226.

Legal Issues Presented

Whether, in view of the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954 (Act XVII of 1954), amounts previously collected by dealers as sales tax (before 1 April 1954) are to be deemed part of their turnover and therefore taxable.
Whether, having regard to the validation and nullification provisions of section 3(1) of Act XVII of 1954 (which purport to render void prior findings and orders to the contrary), the Government can recover amounts that were refunded to dealers pursuant to an order of a Tribunal or Court by issuing demand notices under rule 12 (Form B) of the Turnover and Assessment Rules.
Whether rule 12 of the Turnover and Assessment Rules supplies the appropriate machinery to enable the Government to recover refunds that were paid out pursuant to earlier Tribunal/Court orders but which the Legislature has later declared void by statute.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Deputy Commissioner of Commercial Taxes v. Krishnaswami ([1954] 5 S.T.C. 88; 1954 2 M.L.J. 151)	The principle that, under the scheme of the Madras General Sales Tax Act, an amount collected by a registered dealer from consumers by way of sales tax and paid over to the Government should not be included in the dealer's turnover and should not be taxed again.	The Tribunal and the High Court followed this decision in holding that the petitioners were not liable to pay sales tax on sales tax collections. The Court noted that Act XVII of 1954 altered that legal position by deeming such collections to be part of turnover and by nullifying prior contrary findings and orders.
W.P. Nos. 503 etc. of 1957 (decision of Rajagopala Ayyangar, J.)	The principle that a validating provision (there, section 17 of Act XV of 1956) which validates levy/collection of a tax does not necessarily entitle the Government to re-collect amounts already refunded pursuant to a valid court order (particularly where refund was not based on a mistake of law); validation did not nullify court orders in that instance.	The Court distinguished that decision. It observed that the principle in that case cannot apply where the subsequent statute (Act XVII of 1954) not only validates prior assessments but also explicitly nullifies orders of courts and tribunals to the contrary. Consequently, the earlier principle limiting re-collection under a validating provision was held inapplicable to the statutory scheme under consideration, though the Court relied on other grounds to deny recovery by rule 12.

Court's Reasoning and Analysis

The Court proceeded in structured steps:

Effect of Act XVII of 1954: The Court accepted that section 2 and section 3(1) of Act XVII of 1954 operate to deem amounts collected as sales tax before 1 April 1954 to be part of turnover and to render void any decision, finding, order, judgment or decree to the contrary. As a result, the original assessments by the Deputy Commercial Tax Officer that treated sales tax collections as part of turnover would stand and prior orders directing refunds would be void.
Distinction from prior cases on re-collection: The Court considered the earlier decision in the W.P. Nos. 503 etc. (Rajagopala Ayyangar, J.) holding that a validating provision did not permit re-collection of refunds made under a valid court order. The Court distinguished that decision because section 3(1) of Act XVII of 1954 goes further by explicitly nullifying court and tribunal orders to the contrary, thereby altering the legal position in a way not present in the 1956 enactment considered in W.P. Nos. 503 etc.
Core question framed: Despite the statutory validation and nullification, the decisive question became not whether refunds were legally invalidated by the statute, but whether the statutory machinery available under the Madras General Sales Tax Act and its rules enabled the Government to retrieve monies already refunded to the petitioners.
Analysis of rule 12: The Court examined rule 12 of the Turnover and Assessment Rules. It held that rule 12 operates only in the context of an original assessment to compare provisional payments with the final assessment and to issue either Form B (demand) or Form C (refund) notices accordingly. Rule 12 contemplates a single, purely arithmetic application after the final assessment is made and does not authorize re-issuing Form B or Form C notices more than once or to correct an already-issued refund resulting from appellate or revisional changes.
Role of rules 14-A and 15(2): The Court noted that separate rules (14-A and 15(2)) exist to deal with variations of assessment by appellate or revisional authorities, providing methods for refund or collection in those circumstances. Their existence reinforces the conclusion that rule 12 was not designed to address post-assessment variations effected otherwise than by the initial assessing authority.
Application to the present statutory situation: The Court concluded that Act XVII of 1954 effected a statutory variation in the legal basis of assessment (by deeming sales tax collected to be turnover and nullifying contrary orders), but the Act did not provide the machinery to enable the assessing authorities to recover sums already refunded under prior Tribunal/Court orders. Because rule 12 applies only to the original assessment context and the separate appellate/revisional rules do not cover a statutory variation of the type effected by Act XVII, there was no provision in the Act or rules permitting recovery of the refunded amounts by issuing Form B notices under rule 12.
Final analytical conclusion: Consequently, although the refunds had been rendered legally void by the subsequent statute, the assessing authorities could not lawfully use rule 12 Form B notices to require repayment. The Court recognized that the Government might have other methods of recovery but expressly declined to express any opinion on such alternative methods.

Holding and Implications

Petitions allowed; Form B notices issued under rule 12 to recover amounts refunded pursuant to Tribunal/Court orders are invalid.

Direct effect on the parties:

The demand notices in Form B served on the petitioners under rule 12 are invalid and cannot be enforced to recover the refunded amounts that were paid pursuant to earlier Tribunal/Court orders.
The Court issued appropriate writs prohibiting the first respondent from enforcing payment under those notices.
The Court noted that it was unnecessary to decide whether the Government might have other methods of recovering the tax; that question was left open.
There was no order as to costs.

Broader implications:

The opinion underscores that a legislative validation of past assessments and nullification of contrary court or tribunal orders does not, by itself, create or substitute procedural machinery enabling the executive to recover monies already paid out as refunds; recovery must be supported by appropriate statutory or rule-based mechanisms.
The Court did not purport to set aside or reinterpret the substantive question whether sales tax collections are part of turnover (Act XVII of 1954 itself addresses that substantive question); rather, the decision is focused on the absence of procedural authority under the Act and rules to reclaim refunds via rule 12.
The Court expressly refrained from expressing any view on whether other legislative or executive methods could validly be employed by the Government to recover the refunded amounts.

Disposition: Petitions allowed.

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T.V Sundaram Iyengar And Sons Private Limited v. The Deputy Commercial Tax Officer, Madurai Town I And Another.

The Judgment of the Court was delivered by

Ramachandra Iyer, J.:— These are petitions under Article 226 of the Constitution for the issue of appropriate writs prohibiting the first respondent from enforcing payment of a portion of the sales tax collected but later refunded to the petitioners.

2. The petitioners are dealers in automobiles and their parts having their business at Madurai.

3. In respect of their turnover during the years 1948-49 and 1949-50, they were provisionally assessed to sales tax and such tax was duly paid by them. In the course of their business, the petitioners, who are registered dealers, had collected from their customers the sales tax payable on goods sold to them. In the final assessment to sales tax, the Deputy Commercial Tax Officer included in the assessable turnover collections of sales tax made by the petitioners, with the result that a sum of Rs. 4,927-2-6 in respect of the assessment year 1948-49, and a sum of Rs. 13.369-9-3 in respect of the year 1949-50, were assessed as tax on the sales tax collected. Those amounts as also the tax assessed on the actual turnover were covered by the amount paid in respect of the provisional assessment and were duly appropriated therefrom. The liability to tax on the sales tax collected by treating it as part of the turnover was disputed inter alia by the petitioners both before the Deputy Commercial Tax Officer and the Commercial Tax Officer on appeal. Neither of them accepted the contention of the petitioners. There was a further appeal to the Sales Tax Appellate Tribunal. The Tribunal held that the petitioners were not liable to pay sales tax on the sales tax collections made by them, and directed the refund of that portion of the amount representing the tax on sales tax collected which had been appropriated by the Department. An attempt on the part of the respondent to challenge the correctness of the order of the Tribunal, by way of revision to this Court, failed. While the revision petitions were pending in this Court, the Deputy Commercial Tax Officer issued refund voucher in Form C under rule 12 of the (Turnover and Assessment) Rules for the sums of Rs. 4,927-2-6 and Rs. 13,369-3-3 on 2nd March, 1953, and 7th May, 1953, respectively for the excess amounts collected for the years 1948-49 and 1949-50. An undertaking was taken from the petitioners that they would repay the tax refunded in case the High Court were to set aside the orders of the Sales Tax Appellate Tribunal. That contingency did not happen, as the High Court affirmed the order of the Sales Tax Appellate Tribunal. That was in January, 1954. In holding that there could be no levy of sales tax on the sales tax collected, the view of the Appellate Tribunal and the High Court was in conformity with the decision reported in Deputy Commissioner of Commercial Taxes v. Krishnaswami [1954] 5 S.T.C 88; 1954 2 M.L.J 151., to which one of us was a party. It was there held that, under the scheme of the Madras General Sales Tax Act, an amount collected by a registered dealer from consumers by way of sales tax and paid over to the Government should not be included in the turnover of the registered dealer as part of the sale price of the goods sold, and that the amount was not liable to be taxed over again.

4. Subsequent to the order of the High Court in the revision petitions, the Madras Legislature passed the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954 (Madras Act No. XVII of 1954). The Act received the assent of the President on 6th July, 1954, and contains three sections, of which sections 2 and 3(1) are alone material. They run as follows:—

“2. In the case of sales made by a dealer before the 1st April, 1954, amounts collected by him by way of tax under the Madras General Sales Tax Act, 1939 (Madras Act IX of 1939) (hereinafter referred to as the principal Act), shall be deemed to have formed part of his turnover.

3. (1) All assessments and collections made, all orders passed, and all action taken by any officer in the exercise or purported exercise of jurisdiction or powers conferred by the principal Act, and all judgments, decrees, or orders pronounced by any Tribunal or Court in the exercise of its jurisdiction or powers with respect to matters in the principal Act, on the basis that amounts collected by a dealer by way of tax under the principal Act before the 1st April, 1954, formed part of the turnover of the dealer are hereby declared to have been validly made, passed, taken or pronounced, as the case may be; and any finding recorded by any officer, Tribunal or Court to a contrary effect and any order, judgment or decree in so far as such order, judgment or decree embodies or is based on any such finding and does not relate merely to the costs of the proceeding which resulted in the judgment, decree or order, shall be void and of no effect.”

(Proviso omitted as immaterial)

5. On the basis of the provisions contained in Act XVII of 1954, the Deputy Commercial Tax Officer issued notices on 5th August, 1956, in Form B (rule 12 of the Turnover and Assessment Rules) calling upon the petitioners to remit the amounts of Rs. 4,957-2-6 and Rs. 13,369-3-3 which had been paid over to them by virtue of the refund vouchers referred to already. It is the validity of these notices that is impugned in these petitions.

6. It cannot be disputed that, as a result of the provisions of Act XVII of 1954, the amounts collected by an assessee before the 1st of April, 1954, from his customers by way of sales tax would be deemed to form part of his turnover and be liable to sales tax, notwithstanding the decision in Deputy Commissioner of Commercial Taxes v. Krishnaswami. Even if a matter has been the subject-matter of a decision by an officer, Tribunal or Court holding that such amounts were not taxable as a part of the turnover, section 3(1) makes all such decisions, findings, etc., to the contrary effect void and of no legal effect. The result is that, notwithstanding the order of the Sales Tax Appellate Tribunal and that of this Court in revision cases therefrom, the original assessment by the Deputy Commercial Tax Officer, wherein the petitioners were held liable to pay the sales tax on the sales tax collected by them from the customers, would stand. Act XVII of 1954 contains not merely a positive statement that the sales tax collected would properly form the turnover of a dealer, but also nullifies the effect of an order by a Court or Tribunal to the contrary. It follows that the petitioners would be liable to be assessed to sales tax on the amount of sales tax collected by them from their customers during the period covered by the years 1948-49 and 1949-50.

7. But the more important question in the present case is whether the amount, which had been refunded to the petitioners by the first respondent in pursuance of the order of the Sales Tax Appellate Tribunal, could be collected by the Government under the machinery provided by the Madras General Sales Tax Act. A similar question arose in a slightly different form in W.P Nos. 503 etc. of 1957.* In that case, an amendment of section 3(1)(b) effected by Act XV of 1949 enabled enhanced collection of sales tax at the rate of 4½ pies in a rupee in a case where articles of food and drink were sold in hotels, while the standard rate of tax was only three pies per rupee on the total turnover in all other cases (liability to tax arising only when the total turnover was above Rs. 25,000). The constitutional validity of that provision was negatived by this Court on the ground that it amounted to unreasonable discrimination, and contrary to Article 14 of the Constitution. The Legislature, thereupon, passed Act XV of 1956, which rendered the provision relating to enhanced rate of levy applicable to all cases without discrimination. Section 17 of the Act (the latter enactment) stated that all taxes levied or collected under the original provision would be deemed to have been collected under the new provision, notwithstanding anything contained in any judgment, decree or order of any court. In that case, before the Amending Act was passed, the assessee was repaid the excess collected from him over the standard rate of three pies in a rupee. After the passing of Act XV of 1956, the Deputy Commercial Tax Officer issued a notice of demand to recover the tax refunded. Rajagopala Ayyangar, J., held that the effect of section 17 of Act XV of 1956 was only to validate the levy and collection of the tax that was already made, but that did not enable re-collection of what had been refunded under a valid order of court, particularly when such refund would not be held to be under any mistake of law. The learned Judge held that, if the tax had remained uncollected, the provisions of section 17 would enable a levy or collection at the enhanced rate, but those provisions would not enable the Government to get back what was collected at the higher rate and refunded under a valid order of a court. It might be noticed that section 17 of the Act did not nullify orders passed by courts. The principle of that decision cannot, however, apply to the present case, where the effect of section 3 of Act XVII of 1954 is to make all orders, whether by Court or Tribunal, invalid, with the result that what now stands as the order of assessment is the original order of the Deputy Commercial Tax Officer, assessing turnover by including the amount of sales tax collected by the petitioners from their customers. Section 3 would also make the order of refund void and of no legal effect.

8. But the mere fact that the orders of the Sales Tax Appellate Tribunal and the High Court in revision and the orders of refund pending the revision cases were rendered invalid and of no legal effect, could not nullify or reverse the factum of refund. By reason of the subsequent enactment the petitioners became disentitled to the amount of refund. Possibly they are not entitled to retain the same. How is that amount to be got back by the Government? Can that be done under the power under rule 12? In other words, the question in the present case is not so much whether the refund is valid or invalid, but whether the machinery provided by the Act enables the Government to get back the money refunded to the petitioners. The impugned notices, calling upon the assessees to pay back the amount purport to be issued under the provisions of rule 12 of the Turnover and Assessment Rules. That rule states:—

“After making the final assessment under sub-rule (2) or (3) of rule 11, the assessing authority shall examine whether any and if so, what amount is due from the dealer towards it after deducting any tax already paid on the provisional assessment, with reference to rule 7, rule 8 or sub-rule(4) of rule 11. If any amount is found to be due from the dealer towards the final assessment, the assessing authority shall serve upon the dealer a notice in Form B, and the dealer shall pay the sum demanded at the time and in the manner specified in the notice. If the tax due on the final assessment is lower than the tax already paid on the provisional assessment, he shall serve upon the dealer a notice in Form C for refunding the excess tax. If the final assessment is exactly equal to the tax already paid on the provisional assessment, the assessing authority shall inform the dealer what the final assessment is and that no further amount is due from him towards it.”

9. Rule 12, on its terms, will only apply to the case of an original assessment. If the tax due under the final assessment is found to be lower than the tax paid on the provisional assessment, the officer is directed to issue a notice in Form C for refunding the excess tax. If the former is less than the latter, a notice in Form B is to be issued, making a demand on the assessee for the amount of the deficit. No question will arise, if the amount paid by way of provisional assessment is equal to that assessed as tax. What the rule contemplates is a mere arithmetical computation after the order of assessment is made. There is no power to alter or correct the amount or to issue notices in Form B or C more than once. To illustrate the position. We can refer to a simple case, where the assessing authority has made a mistake in the calculation of the tax. Suppose the assessing authority on the basis of such a mistake finds that the assessee had paid by way of provisional assessment more than what he was assessed to and thereupon gives a refund certificate in Form C which is duly cashed. Under the provisions of the Madras General Sales Tax Act, there is no power in that authority to rectify the mistake; the mistake can be rectified only in revision. Thus in regard to an original assessment there would be no occasion for the assessing authority to issue a notice in Form B or C more than once. When an assessment is varied in appeal or revision, rule 12 does not enable an issue of Form B or C notice to collect the deficiency in or refund the excess payment of tax. The rule-making authorities have, therefore, provided separate rules for the purpose. Rules 14-A and 15(2) of the Madras General Sales Tax Rules provide for the case of modification of assessment by the appellate and revisional authorities. They state:—

“14-A. Where the tax as determined by the initial assessing authority appears to the appellate authority under section 11 or revising authority under section 12 to be less than the correct amount of the tax payable by the dealer, the appellate or revising authority shall, before passing orders, determine the correct amount of tax payable by the dealer issuing a notice to the dealer and after making such enquiry as such appellate or revising authority considers necessary.

15. (2) The order passed on appeal or revision shall be given effect to by the licensing or assessing authority who shall refund within two months from the date of the communication of the order any excess tax or fee found to have been collected and shall also have power to collect any additional tax or fee which is found to be due in the same manner as a tax or fee assessed by himself.”

10. There would be no necessity for these provisions in the rules if under rule 12 itself the assessing authority had a power to issue demands or make refunds on an alteration in the assessment being made by an appellate or revisional authority. Rule 12 can, therefore, apply only for those cases expressly provided for by it, that is, a case of the initial assessment. If once a demand or refund certificate has been issued, it ceases to have effect except in cases covered by rules 14-A and 15(2) of the General Sales Tax Rules. A fortiori rule 12 cannot apply to a case where as a result of the statute like Act XVII of 1954 there has been a variation in the assessment: neither rule 14-A, 15(2) or any other rule would apply to such a case. Therefore, rule 12 cannot be used to get back an amount refunded to the assessee by the issue of Form B notice. Under the terms of that rule a demand notice can be issued only when the provisional tax paid is less than the tax assessed. In the absence of specific statutory provision, it is not possible to import in the construction of that rule that what was paid by way of provisional tax was what was actually paid minus the amount refunded, so that the deficiency of the resulting amount with the actual tax now validated by Act XVII of 1954 could be said to be a deficiency coming within the meaning of rule 12. There is thus no machinery provided either in the Act or rules to enable the Government to collect under rule 12 the amount paid by way of refund. While Act XVII of 1954 validates all assessments to tax on the amounts of sales tax collected by a dealer and nullifies any order having contrary effect, it has failed to provide for a machinery to give effect to its provisions, to enable the authorities to recover any amount paid by way of refund by reason of any judgment or order which the statute has declared as void. It is unnecessary for us to express any opinion in this case whether the Government might have other methods of recovering that tax from the petitioners. The demand notices in Form B served on the petitioners under rule 12 of the Turnover and Assessment Rules are invalid, and the amount of tax refunded could not be collected by them in pursuance of such notices. An appropriate writ will be issued to that effect. There will be no order as to costs.

11. Petitions allowed.

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