1. Heard Sri Nishant Mishra, learned counsel for the applicant and Sri Jagdish Mishra, learned Standing Counsel.
2. The present revision has been filed by the applicant-assessee against the order dated 17.09.2018 passed by the Commercial Tax Tribunal, Lucknow in Appeal No. 8 of 2017 [against order under Section 4A(3)] of the U.P. Trade Tax Act, 1948 (hereinafter referred to as 'the Act'). By that order, the Tribunal had rejected the appeal filed by the assessee against the order dated 02.08.2017 passed by the Commissioner, Trade Tax, under Section 4A(3) of Act. The present revision was admitted on the following question of law:-
"Whether order dated 2.8.2017 passed under Section 4-A(3) of erstwhile U.P. Trade Tax Act, 1948, cancelling eligibility certificate dated 26.10.2002 which was valid from 30.03.2000 to 29.03.2008, is barred by limitation?"
3. Briefly, the applicant established a 'new unit' Section 4A of the Act to manufacture Industrial Composite Solvent. It applied for and was granted eligibility certificate (for the purpose of Section 4A of the Act), on 26.10.2002, for the period 30.03.2000 to 29.03.2008. It has also not disputed, for the A.Y. 2000-01 and 2001-02, the benefit of exemption was granted to the assessee in view of the eligibility certificate dated 26.10.2002.
4. It was the case of the assessee that during the A.Y. 2001-02 and 2002-03, it had manufactured Industrial Composite Solvent from the raw material 'processed waste of bulk drug' purchased from M/s Ranbaxy Laboratories Ltd., Punjab. Owing to the fact, that raw material had very high content of water, the manufacturing cost of the assessee had escalated upon process employed to remove excess water from that raw material. Therefore, the assessee started importing (from outside the country), another raw material namely 'thinner' to manufacture Industrial Composite Solvent, by the process of distillation. Also, it has come on record that the assessee had obtained the registration under the provision of Central Excise Act, 1944 and that it paid excise duty @ 16% on clearance of Industrial Composite Solvent manufactured by it.
5. Relevant to the present controversy, on 28.01.2004, a survey was conducted at the business premises of the assessee by the Special Investigation Branch (hereinafter referred to as SIB), of the Trade Tax Department. During that survey, certain statements of workers of the assessee were claimed to have been recorded, who allegedly denied fact of manufacturing activity having been conducted by the assessee. According to those statements, the assessee did not utilize the raw material purchased by it to manufacture any goods. In this regard, certain other facts were also noted with respect to the condition of the factory premises to conclude that the assessee was not engaged in the manufacturing activity and that it was merely engaged in trading in the raw material.
6. On the basis of that survey, the assessment of the assessee were completed for the A.Y. 2002-03, 2003-04 and 2004-05, whereby the exemption claimed by the assessee was declined. Those matters were carried in appeal wherein the proceedings were remanded to the assessing officer. Thereafter, on 10.04.2017, i.e. 9 years after the expiry of the period of exemption and 13 years after the above noted survey had been conducted by the Special Investigation Branch of the Trade Tax Department, a notice was first issued to the assessee under section 4A(3) of the Act proposing to cancel the eligibility certificate dated 26.10.2002.
7. The assessee filed its objection thereto. However, by order dated 02.08.2017, the Commissioner of Trade Tax cancelled the eligibility certificate of the assessee. In that order, the Commissioner referred to the facts found during the survey as also the consumption of electricity and purchase of LDO / Diesel Oil and also other documents. After considering the reply furnished by the assessee, the Commissioner of Trade Tax concluded that the consumption of electricity by the assessee for the A.Y. 2002-03 and 2003-04 was not proportionate to the production of Industrial Composite Solvent declared by the assessee in those years. The Commissioner also took note of the fact that during the survey, no stock of goods was found and certain other discrepancies were noted with respect to transportation charges and fuel expenses etc. Based on such reasoning, the Commissioner concluded that the assessee had wrongly disclosed the facts pertaining the manufacturing activity claimed by it and that it had disposed of the raw material without utilizing it in the manufacturing activity. Therefore, the assessee was held to have committed breach of the terms and conditions of exemption. Consequently, the exemption certificate was cancelled with effect from 01.04.2003.
8. The assessee carried the matter in appeal to the Tribunal. On the question of delay (on which the present revision has been admitted) the Tribunal observed, the assessment proceedings for the A.Y. 2003-04 had been finalized by the order dated 20.03.2006 which was set aside in appeal and the matter remitted to the Assessing Authority for decision afresh. In that regard, it was further observed that the matter remained pending with the Assessing Authority for 11 years and the assessment order could be passed belatedly on 27.02.2017, due to the conduct of the assessee. It was therefore concluded the conduct of the assessee estabished his intention to cause delay. As a principle of law, it was observed, there was no period of limitation prescribed under Section 4A(3) of the Act, and therefore in view of the finding of fact recorded by the Commissioner as to the breach of the terms and conditions of exemption, committed by the assessee, the order dated 02.08.2017 passed by the Commissioner did not call for any interference.
9. Learned counsel for the assessee submits, in the first place, though there was no limitation prescribed under Section 4A(3) of the Act where after the Commissioner may not bring a proceeding for cancellation of the eligibility certificate, however, that power may be exercised only within a reasonable period of time. He has placed reliance on the decision of the Supreme Court in Joint Collector Ranga Reddy District and Another Vs. D. Narsing Rao and others, (2015) 3 SCC 695. In that case with respect to the power of revision under Section 166B of the A.P. (Telangana Area), Land Revenue Act, it was held though no period of limitation may have been prescribed for exercise of revision jurisdiction, that power must be exercised within a reasonable period even in cases where allegation of fraud may have necessitated the exercise of any corrective power.
10. The delayed exercise of revisional jurisdiction was disapproved on the reasoning, human transactions cannot remain forever open to challenge as that would introduce avoidable and endless uncertainty in human affairs, contrary to the policy of law. In any case, it was observed, even in cases of fraud, the exercise of corrective power must be made within reasonable time from the discovery of fraud. Paragraph nos. 25 and 31 of the aforesaid judgement as are relevant to the present controversy are quoted below:
"25. The legal position is fairly well settled by a long line of decisions of this Court which have laid down that even when there is no period of limitation prescribed for the exercise of any power, revisional or otherwise, such power must be exercised within a reasonable period. This is so even in cases where allegations of fraud have necessitated the exercise of any corrective power. We may briefly refer to some of the decisions only to bring home the point that the absence of a stipulated period of limitation makes little or no difference insofar as the exercise of the power is concerned which ought to be permissible only when the power is invoked within a reasonable period.
31. To sum up, delayed exercise of revisional jurisdiction is frowned upon because if actions or transactions were to remain forever open to challenge, it will mean avoidable and endless uncertainty in human affairs, which is not the policy of law. Because, even when there is no period of limitation prescribed for exercise of such powers, the intervening delay, may have led to creation of third-party rights, that cannot be trampled by a belated exercise of a discretionary power especially when no cogent explanation for the delay is in sight. Rule of law it is said must run closely with the rule of life. Even in cases where the orders sought to be revised are fraudulent, the exercise of power must be within a reasonable period of the discovery of fraud. Simply describing an act or transaction to be fraudulent will not extend the time for its correction to infinity; for otherwise the exercise of revisional power would itself be tantamount to a fraud upon the statute that vests such power in an authority."
11. Then as to the computation of reasonable time, reliance has been placed on the another decision of the Supreme Court in the case of State of Punjab and others Vs. Bhatinda District Cooperative Milk Producers Union Ltd, 2007 (11) SCC 363. In that case, the dispute pertained to levy of purchase tax on milk. The normal period of limitation for imposing the tax liability was three years that could be extended up to 5 years. In that factual background, in the context of revision jurisdiction (for which no period of limitation had been prescribed), the Supreme Court concluded that the revisional jurisdiction should ordinarily be exercised within three years and in any case, it could not exceed the period of five years. Paragraph no. 19 of that judgment is quoted below:
"19. Revisional jurisdiction, in our opinion, should ordinarily be exercised within a period of three years having regard to the purport in terms of the said Act. In any event, the same should not exceed the period of five years. The view of the High Court, thus, cannot be said to be unreasonable. Reasonable period, keeping in view the discussions made hereinbefore, must be found out from the statutory scheme. As indicated hereinbefore, maximum period of limitation provided for in sub-section (6) of Section 11 of the Act is five years."
12. It has thus been submitted that clearly the principle of reasonable time was applicable to the present case though no period of limitation was prescribed under Section 4A (3) of the Act. Further, as to the computation of reasonable time, it has been submitted the same had to be similar to the period of limitation for making an assessment, being two years (normal period of limitation) and not more than six years (extended period of limitation) provided under Section 21(2) of the Act.
13. Also, it has been submitted, the date from which such period of limitation may start running had to be the date when the revenue claimed to have discovered the fact giving rise to the proceedings under Section 4A (3) of the Act-being the survey conducted on 28.1.2014. Thus, it has been submitted that the proceedings for cancellation of the elligiblity certificate may have been instituted either within two years from 21.1.2004 and in any case, not later than six years from 28.1.2004. It has thus been submitted, reasonable time expired on 27.1.2010 while the first notice was issued under Section 4A(3) of the Act, much later, on 10.4.2017, i.e. more than seven years after lapse of reasonable time. Therefore, the proceedings were wholly time barred.
14. Alternatively, reliance has also been placed on the principle that the power to cancel the eligibility certificate being discretionary, the lapse of long period of time itself rendered the proceedings defective. Relying on the decision of another learned single judge of this Court in Janta Dal Mill, Radha Nagar, Fatehpur Vs. The Commissioner of Trade Tax, U.P., Lucknow, 1999 NTN (Vol. 15) 714, it has been submitted once it was established, the notice under Section 4A(3) of the Act had been issued more than 9 years after the expiry of the period of exemption and more than 13 years after the discovery of the alleged breach of terms and conditions committed by the assessee, the discretionary jurisdiction of the Commissioner could not have been readily invoked. Reliance has also been placed on another learned single judge of this Court in the case of M/s Bharat Steel Rolling Mill vs. The Commissioner of Trade Tax, U.P., Lucknow, 2002 NTN (Vol. 20) 1, wherein relying on the decision in the case of Janta Dal Mill, Radha Nagar, Fatehpur Vs. The Commissioner of Trade Tax, U.P., Lucknow (supra), this Court held that cancellation of the eligibility certificate well after the expiry of the period of exemption was highly improper. In that case, the proceedings had been drawn up about four and a half years after the expiry of the period of exemption. Further, reliance has been placed on the decision of the another learned single judge of this Court in the case of Chetna Chemicals Private Limited Shah Maroof Pvt. Ltd. Vs. Commissioner of Trade Tax, 2007 10 VST 569 (All), wherein following the earlier decision of this Court in the case of Janta Dal Mill, Radha Nagar, Fatehpur Vs. The Commissioner of Trade Tax, U.P., Lucknow (supra) and M/s Bharat Steel Rolling Mill vs. The Commissioner of Trade Tax, U.P., Lucknow (supra), this Court held the proceedings under Section 4A(3) of the Act initiated five to six years after the expiry of the period of the exemption was highly belated and improper. In those facts and circumstances of that case, it was observed the Commissioner should not have exercised it's discretionary power under Section 4A(3) of the Act.
15. Learned Standing Counsel, on the other hand, submits in the first place, there has to be the distinction made between cases where the eligibility certificate may have been issued due to a legal or factual error and cases where the new unit may have committed breach of any of the conditions or where the new unit may not be entitled to the facility of exemption. In his submission, in cases involving breach of terms and conditions, no period of limitation may be enforced against the revenue as in those cases, the conscious conduct of the assessee would always be a relevant for the purpose of the initiation of the proceedings. The assessee being guilty of misconduct, he may not be permitted to raise the plea of limitation in absence of any statutory mandate to limit the exercise of power to a particular period of time.
16. In contrast, where the eligibility certificate may have been issued due to legal or factual error on part of the issuing authority, the assessee may not be to blame and, therefore, the principle of reasonable time may be enforced against the revenue authorities in those cases. The same may be the case where the entitlement to exemption may be doubted by the revenue authorities subsequent to the grant of eligibility certificate. Reliance has also been placed on the decision of the Supreme Court in the case of the L.S. Synthetics Ltd. Vs. Fairgrowth Financial Services Ltd. and Another, 2004 (11) SCC 456 to submit that the Limitation Act may not be applicable, as the same has not been specifically incorporated in the provision in question. Also, reliance has been placed on a Division Bench decision of this Court in the case of M/s Bharat Pumps and Compressors Ltd., Naini, Allahabad Vs. State of U.P. and Another reported in 1995 UPTC 256.
17. Having considered the arguments so advanced by learned counsel for the parties, in the first place, it may be noted, undeniably the fact giving rise to the proceedings under Section 4A(3) of the Act came to the knowledge of the revenue authorities on 28.01.2004 (during the course of survey), and not later. That survey conducted by the SIB/revenue authorities being the foundation of the proceedings for cancellation of eligibility certificate, it is to be seen whether such proceedings could be drawn up on 10.04.2017 when the notice to cancel the eligibility certificate was first issued under section 4A(3) of the Act.
18. In this context, the ratio of the decision of the Supreme Court in the case of Joint Collector Ranga Reddy District and Another Vs. D. Narsing Rao and others (supra) is pertinent. In that case also, there was no period of limitation prescribed to exercise revision jurisdiction. A plea was also set up that the revenue entries had been obtained fraudulently and therefore in absence of any period of limitation being prescribed, the concept of reasonable period be excluded. In fact, the High Court had quashed the order passed in revision on account of that power having been exercised 50 years after the revenue entries had been recorded. Thus, plea of fraud having been set up yet, the Supreme Court held merely describing an act to be fraudulent may not extend the time for its correction, to infinity. In fact, it was further held, to allow such power to be exercised would tantamount to a fraud upon the statute that vests the power in the authority.
19. Therefore, as a principle, merely because the revenue authorities had asserted that the assessee had committed breach of the terms and conditions of eligibility certificate by making sale of the raw material in same form and condition, without manufacturing the goods for which it may have been granted the exemption certificate, cannot itself lead to the exclusion of the principle of the reasonable time that must be read into such proceedings. As a principle, expiry of limitation only bars the remedy, not the rights. Especially in a matter such as this where the end conclusion of cancellation of Eligibility Certificate would always depend on the fate of an enquiry as to facts, non-initiation of the proceedings within a reasonable period of time would have to be fatal as expiry of reasonable time would bar the remedy being sought by the revenue. It would be a different case where the remedy may have been sought within reasonable time by issuance of the notice under section 4A(3) of the Act but where proceeding may remain pending beyond reasonable time. That issue is not involved here.
20. As noted above, the charge of breach of terms and conditions is a factual charge. It would require evidence to be led by both parties before the issue may be determined. For leading evidence, time is of essence. While the revenue authorities may choose a time that may be to their liking or disposition, an assessee who would suffer the brunt of such a charge being levelled cannot be left at the mercy of the revenue authorities as to choice of time as it may itself deprive the assessee of opportunity to lead any evidence in his defence and destroy his right to equal and fair opportunity to defend.
21. Undisputedly, the survey giving rise to the proceedings was conducted on 28.01.2004 whereas the proceedings were drawn up for the first time on 10.04.2017, i.e. 13 years after the revenue allegedly came into possession of information and material that the assessee may have committed breach of the terms and conditions of the eligibility certificate. No explanation was offered for the delay of 13 years. Merely because certain assessment proceedings may have remained pending, it could never be cited as a reason to justify the delay.
22. Assuming, the delay of 11 years in the conclusion of assessment proceedings for A.Y. 2003-04 was attributable solely to the conduct of the assessee yet, it was wholly irrelevant for the purpose of initiation of proceedings under Section 4A(3) of the Act. While the assessment order was to be made by the assessing authority, the proceedings under Section 4A(3) of the Act were to be initiated by the Commissioner, Trade Tax. No legal or factual impediment has been shown to exist as may have prevented the Commissioner from initiating those proceedings. Scope and conduct of the two proceedings being completely independent of each other, mere pendency of the assessment proceedings could never be relevant for the purpose of initiation of proceedings under Section 4A(3) of the Act.
23. Clearly, the principle of reasonable time remained applicable and is relevant to the proceedings for cancellation of the eligibility certificate arising from the allegation of breach of the terms and conditions of eligibility.
24. As to the period of time that may be construed to be reasonable, certainly, the period of limitation prescribed under Section 21 of the Act is relevant. Though the initiation, conduct and scope of the two proceedings is independent of the other, the cancellation of eligibility certificate would directly impact the assessment proceedings and consequently on the penalty proceedings as well though the opposite may not be true. Normally, the assessing authority could not have made an assessment beyond a period of six years from the close of the assessment year in which the exemption came to an end. Therefore, normally, cancellation of the exemption certificate beyond that period would be a futile exercise. In any case, relevance of the period of limitation to make assessment being clearly established, it has to be held that the revenue authorities could have initiated the proceedings under Section 4A(3) of the Act within six years from the end of the A.Y. 2007-08, since the period of exemption expired in that year.
25. The fact in the instant case certain assessment proceedings remained pending till initiation of the proceedings under section 4A(3) of the Act, would make no difference, since the jurisdictional fact giving rise to the latter proceedings occured much earlier. It was always known to the revenue and the intitiation of the proceedings was not inhibited or obstructed, to any extent or manner, either in law or by any conduct offered by the asssessee. Also, it has not been shown by the revenue that it was, in any manner under any disability of difficulty to initiate that exercise, at any earlier point in time.
26. Treating the discovery of the fact giving rise to proceedings under Section 4A(3) of the Act as the relevant date to initiate those proceedings, and applying or borrowing the prescription of limitation contained in section 21(2) of the Act, the proceedings could not have been initiated beyond 31 March 2010 being the end of extended period of limitation/six years, from the end of A.Y. 2003-04 during which the revenue authorities admittedly acquired knowledge of the alleged breach. In any case, in the instant case, the cancellation proceedings were initiated 9 years after the close of A.Y. 2007-08 when the exemption availed by the assessee also came to an end. Thus, in any event, the proceedings under section 4A(3) of the Act were initiated outside reasonable period of time .
27. The decision cited by the learned Standing Counsel in the case of L.S. Synthetics Mills (supra) is inapposite to the facts of the present case. In that case the Supreme Court repelled the objection as to bar of limitation claimed qua the proceedings under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, on the principle-once the offendor had been notified, he could not plead bar of limitation for acts that a court must perform. Similarly, reference to the Division Bench decision in the case of Bharat Pump Corporation Ltd (supra) is also not appropriate inasmuch as in that case, arising under section 3-B of the Act, it was reasoned, there was no quantification of liability required, but only a recovery to be made equal to the benifit availed on the basis of a wrong or false certificate. The nature of that proceeding was held to be not of assessment of tax liability and therefore that limitation was held inapplicable.
28. However, in the instant case, disputed questions of fact are involved as to whether the assessee had committed breach of terms and conditions of the Eligibility Certificate granted to it. Only, after adjudicating that issue, the Eligibility Certificate could be cancelled as may have an impact in the assessment proceedings. An allegation of breach of terms and conditions, by its nature calls for an adjudication after putting the concerned to notice.
29. To summarise, even if the allegation of breach of terms and conditions of exemption made against the assessee were to be treated at par with fraud, in view of the law discussed above, the principle of limitation would still apply. The proceedings having been initiated belatedly, after the expiry of reasonable time, again as discussed above, the same were barred by limitation. Also, I am in respectful agreement with the opinion of the three leaned Single Judges of this Court, in the Janta Daal Mills (supra); Bharat Steel Rolling Mill (supra) and M/s. Chetna Chemicals (supra). The Commissioner ought not to have exercised his discretion to initiate the proceedings after expiry of 9 years from end of the exemption period.
30. Consequently, the question of law is answered in the affirmative and against the revenue, thus: Though the cancellation of eligibility certificate of the assessee was not expressly barred by limitation under Section 4A(3) of the Act, however, the revenue authorities having inexplicably delayed the initiation of proceedings beyond a reasonable time, computed either from the date of discovery of the alleged breach of terms and conditions of the eligibility certificate by the assessee as also from the end of the assessment year in which the assessee's exemption period came to an end, the same were bad. In any case, the discretionary power exercised by the Commissioner became legally unsustainable due to that delay.
31. The present revision is allowed. No order as to costs.
Order Date :- 23.1.2019 Prakhar