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M.A. And Company vs Assistant Commissioner ...

High Court Of Judicature at Allahabad|28 January, 1964

JUDGMENT / ORDER

JUDGMENT R.S. Pathak, J.
1. The petitioner, M/s. M. A. Company, is a partnership firm, which carried on the business of the manufacture and sale of hand-made bidis during the assessment years 1956-57 and 1957-58. The petitioner has been assessed to sales tax for the assessment year 1957-58 at the rate of one anna per rupee Under Section 3-A of the U.P. Sales Tax Act. The petitioner made a number of applications Under Section 7-E of the Act for permission to pay a sum by way of composition on the turnover of the period 14th December, 1957, to 31st March, 1958, in lieu of the tax payable thereon but these applications were rejected, principally on the ground that they were made beyond the time prescribed therefor. The petitioner prays for certiorari quashing the order rejecting the applications made Under Section 7-E and for mandamus directing the respondents not to realise the sales tax assessed by the assessment order for the year 1957-58.
2. This petition came on for hearing before our brother Manchanda, J., who, being of the opinion that it raised questions of importance, referred the case to a larger Bench.
3. Section 7-E was inserted in the U.P. Sales Tax Act by the U.P. Sales Tax (Third Amendment) Act, 1957 (published in the U. P. Gazette dated 28th January, 1958), with effect from 14th December, 1957. It provides:-
7-E. (1) Notwithstanding anything to the contrary in this Act, the assessing authority may in respect of such goods or classes of goods as may be notified by the State Government in this behalf, permit a dealer to pay in lieu of the tax payable by him under the Act on his turnover of such goods during an assessment year or a portion thereof, a lump sum by way of composition subject to such conditions as may be notified in this behalf.
(2) Where a notification Under Sub-section (1) of this section is issued, the State Government shall also notify the manner in which the amount by way of composition shall be determined and the manner in which it shall be paid.
4. The State Government issued a Notification No. ST. 349/X dated 28th January, 1958, stating that in respect of certain goods a dealer would be permitted to pay, in lieu of the tax payable by him on his turnover of such goods for the period 14th December, 1957, to 31st March, 1958, a lump sum by way of composition, and provided in the notification how that sum would be determined and paid. The dealer was required to make an application for composition to the assessing authority within thirty days of the issue of the notification or such further period as the Sales Tax Commissioner, or an officer authorised by him in this behalf, may allow. It was also stated that in the case of a dealer who carried on business during the whole of the assessment year 1956-57 the amount of composition would be calculated at the rates specified in the notification on the turnover of the goods in the last quarter of that year or if this could not be determined with reasonable accuracy then on an amount equal to one quarter of the turnover as finally determined in the assessment year 1956-57. This notification was subsequently amended by Notification No. ST. 897/X dated 27th February, 1958, which substituted a period up to 15th March, 1958, for making the application in place of the original period of thirty days from the issue of the notification. The period was later on finally extended up to 15th April, 1958. The provision empowering the Sales Tax Commissioner, or an officer authorized by him in this behalf, to extend the period specifically prescribed continued throughout.
5. The petitioner contends that the Sales Tax Officer could not in law refuse him permission Under Section 7-E to pay an amount by way of composition on the ground that his applications in this behalf were barred by time, and that as he was entitled to the grant of such permission he was not liable to pay sales tax pursuant to the assessment made by the Sales Tax Officer for that period.
6. This contention proceeds on the submission that (1) the State Government had no power Under Section 7-E to require a dealer to make an application for composition; (2) the State Government, assuming it had the power to require the making of an application for composition, had no authority to prescribe a period for making such application ; (3) the period for making the application specifically mentioned in the notification of 28th January, 1958, even as enlarged by subsequent notifications was uureasonable, and it was not reasonably possible for dealers on account of certain circumstances to ascertain the true burden of tax liability within that period and therefore to determine whether they should opt for payment by way of composition; and (4) upon a true interpretation of the provisions of Section 7-E, the petitioner was entitled to apply for permission to pay the composition amount even after an assessment order for that period had been made.
7. Consideration of the last contention would, it seems to us, clear the ground for dealing with the remaining contentions, and we are therefore disposed to examining this last contention first.
8. Section 7-E provides for permission to a dealer to pay a sum by way of composition in lieu of "the tax payable by him under the Act on his turnover...." Now tax is payable on his turnover by a dealer under the U.P. Sales Tax Act by virtue of Section 3, which declares :
Subject to the provisions of this Act, every dealer shall for each assessment year, pay a tax at the rate of two naye Paise per rupee on his turnover of such year....
9. The liability to pay tax is created by Section 3. The incidence of tax may be confined to a single point and the rate may be enhanced by a notification Under Section 3-A. Sales tax is payable on the turnover, i.e., the aggregate amount for which goods are sold or supplied or distributed by way of sale by the dealer. Tax becomes payable when liability to pay tax arises, and liability to pay tax arises by the happening of the taxable event. The taxable event under the U.P. Sales Tax Act is the sale of goods or their supply or distribution by way of sale. It is not necessary to wait until the assessment has been completed in order to be able to say that a tax has become payable. There is a distinction between the expressions "tax payable" and "tax due". Tax is due when it becomes a debt owed to the taxing State : it becomes a debt when it has been determined by assessment and quantified, and a notice of demand has been issued intimating the amount of tax and demanding payment. See Doorga Prosad v. The. Secretary of State [1945] 13 I.T.R. 285, 289 (P.C.),. As Lord Dunedin observed in Whitney v. Commissioners of Inland Revenue' [1926] A.C. 37, 52,:
Now, there are three stages in the imposition of a tax : There is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend upon assessment. That, ex hpothesi, has already been fixed. But assessment particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery if the person taxed does not voluntarily pay.
10. This statement of the law was quoted with approval by Lord Hanworth, M.R., in W.H. Cockerline and Co. v. Commissioners of Inland Revenue (1930) 16 Tax Cas. 1,19, who further observed :
'...but the charge is made, in consequence of the Act, upon the subject; the assessment is only for the purpose of quantifying it.
11. Lord Hanworth also referred to the case of Williams v. Henry Williams Ltd. Court of Appeal: 3rd November, 1926; Not reported, where Lord Justice Sargant said :
I cannot see that the non-assessment prevents the incidence of the liability, though the amount of the deduction is not ascertained until assessment. The liability is imposed by the charging section, namely Section 38 (of the English Act) the words of which are clear. The subsequent provisions as to assessment and so on are machinery only They enable the liability to be quantified, and when quantified to be enforced against the subject, but the liability is definitely and finally created by the charging section and all the materials for ascertaining it are available immediately.
12. These decisions were followed by the Federal Court in Chatturam and Ors. v. Commissioner of Income-tax [1947] 15 I.T.R. 302.
13. That the liability to tax arises by virtue of the charging section alone was stated by Lord Uthwatt, delivering the judgment of the Judicial Committee, in Wallace Brothers and Co., Ltd. v. Commissioner of Income-tax [1948] 16 I.T.R. 240 in a case arising upon the provisions of the Indian Income-tax Act, 1922. This dictum has been re-affirmed by the Supreme Court in Kalwa Devadattam v. Union of India [1963] 49 I.T.R. 165.
14. From the language of Section 7-E, it is plain that permission granted under that section to pay a sum by way of composition negatives the liability to pay tax under the Act which is created by the charging section.
15. The argument for the petitioner is that the words in Section 7-E, "the tax payable...under the Act", must refer to the tax as actually assessed. Reliance is placed upon In re Recols (India) Ltd. [1953] 4 S.T.C. 271, and Re Pratt : Ex parte : Inland Revenue Commissioners v. Phillips [1950] 2 All E.R. 540, but in both these cases the decision turned on the use of the expression "due and payable," and, as observed above, the use of the word "due" clearly points to the stage when the liability has been quantified and a debt has arisen. These decisions, we think, are of no assistance to the assessee. In our opinion, the case is governed by the principle adopted in A.P. Mariappa Mudaliar v. The State of Madras [1962] 13 S.T.C. 746.
16. Another reason advanced in support of the contention that the words "tax payable under the Act" must mean the tax liability as quantified in accordance with the provisions of the Act is that the dealer can properly decide whether to opt in favour of payment by way of composition when he knows what is the amount of his tax liability because it is only then that he can determine whether it is to his advantage to invoke the provisions of Section 7-E. If that argument is accepted, then carried to its logical limit, it must imply that the dealer is entitled to wait until he has exhausted the remedies by way of appeal, revision and reference (or even further appeal by special leave before the Supreme Court) before he can definitely know what is his tax liability and accordingly exercise his option. And inasmuch as Section 7-E entitles a dealer, to whom permission in this behalf has been accorded to pay an amount by way of composition instead of the tax levied under the Act, the Sales Tax Officer must desist from attempting to recover the sales tax assessed by him until the remedies available to the dealer have been exhausted. This will be to put an impossible burden upon the language of Section 7-E and would run counter to the avowed object of the Act, which is a fiscal statute. It is difficult to contemplate that the Legislature intended Section 7-E to carry the construction sought to be imposed on it by the petitioner.
17. We are, therefore, clearly of the view that the contention of the petitioner that upon the language of Section 7-E he was entitled to seek permission to pay a sum by way of composition even after the assessment proceedings had been completed must be rejected.
18. We may now turn to consider the contention that the State Government had no power Under Section 7-E to require the making of an application and to prescribe a period for making that application. Section 7-E(2) expressly empowers the State Government to notify the manner in which the amount by way of composition shall be determined and the manner in which it shall be paid. The manner in which the amount shall be determined includes the procedure in accordance with which the amount must be computed and this procedure would include the making of an application within a specified period. Who shall determine the amount, the procedure for arriving at that determination and the principles upon which the amount would be determined are all matters left to the State Government. Section 7-E provides for the grant of permission to a dealer to pay an amount by was of composition. It is an alternative to the charging provisions of the Act. The permission must be sought by the dealer, as Section 7-E is intended to be for the benefit of the dealer. Upon the omission of the dealer to invoke the provisions of Section 7-E the Sales Tax Officer would be fully entitled to proceed to apply the charging provisions and to make an assessment consequent thereto. The option exercised by the dealer must be conveyed to the Sales Tax Officer and that, the notification declares, must be by an application. It is only if an application is made that the Sales Tax Officer will be called upon to consider whether the dealer should be permitted to pay, in lieu of the tax payable, an amount by way of composition. The State Govern-ment was, therefore, entitled to require that an application be made and it was further within its discretion to indicate the period within which the application must be made. The notification provided a period which was certain. The period was not absolute in duration. It could be extended in the discretion of the Sales Tax Commissioner or an officer authorized by him in this behalf.
19. The only remaining contention of the petitioner is that the period specifically mentioned in the notification was unreasonable, and to demonstrate the force of this argument reference is made to the uncertain state of the law relating to the true rate of tax applicable to the turnover of the petitioner. It is pointed out that the original rate of tax was six pies per rupee, that this rate was enhanced to one anna per rupee by Notification No. ST. 905/X dated 31st March, 1956, that that notification was declared void by this Court in Adarsh Bhandar v. Sales Tax Officer 1957 A.L.J. 654, that this was followed by the U.P. Sales Tax (Amendment) Act, 1957, which sought to validate the notification, but upon the question being raised again before this Court in Firm Bangali Mal Satish Chandra Jain v. Sales Tax Officer 1958 A.L.J. 228, it was held that the Amending Act did not succeed in validating the notification, which continued to be invalid. This position continued until the U.P. Sales Tax (Validation) Act, 1958, was enacted, upon which the Supreme Court held on 17th April, 1961, in J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh A.I.R. 1961 S.C. 1534, that the notification stood saved thereby. It is also pointed out by the petitioner that by virtue of the notification of 28th January, 1958, the benefit of Section 7-E was conferred upon goods other than those exempted from sales tax by virtue of their having borne additional excise duty, that there was some controversy whether hand-made bidis were liable to such additional excise duty, and that controversy was resolved only on 10th April, 1962, when the Supreme Court held in Chhotabhai Jethabhai Patel and Co. v. State of Uttar Pradesh A.I.R. 1962 S.C. 1614, that no such duty was leviable on hand-made bidis, and that therefore the sale of hand-made bidis was not exempt from the operation of the U.P. Sales Tax Act. It is said that this was another circumstance contributing to the uncertainty which could reasonably be said to have prevented a dealer from deciding whether or not to seek the benefit of Section 7-E. It is urged that by the time the uncertainty was resolved by the decisions of the Supreme Court the period in the notification of 28th January, 1958, for applying for permission Under Section 7-E had already expired, and that therefore the period specified in the notification was arbitrary and unreasonable. We have no hesitation in rejecting this contention. It is true that the notification, as finally amended, required the making of the application by 15th April, 1958, but, as we have noticed above, it also included a provision empowering the Sales Tax Commissioner, or an officer authorised by him in this behalf, to extend the period beyond this date. If the petitioner had applied for extension of the period because of the peculiar circumstances to which he has adverted, we cannot presume that his prayer would not have been granted. A discretion to enlarge the time having been expressly conferred by the notification, it must be presumed that the discretion would be properly exercised. In the present case, moreover, it is admitted that although a number of applications were made by the petitioner Under Section 7-E, he did not at any stage apply for extention of time for making the applications.
20. For all these reasons, we are of the opinion that the impugned provisions of Notification No. ST. 349/X dated 28th January, 1958, are not ultra vires and that the Sales Tax Officer acted within his jurisdiction in passing the orders which he did upon the application made by the petitioner Under Section 7-E and in taking proceedings to recover from the petitioner the sales tax assessed for the period 14th December, 1957, to 31st March, 1958.
21. There is, therefore, no force in this petition which is accordingly dismissed with costs.
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Title

M.A. And Company vs Assistant Commissioner ...

Court

High Court Of Judicature at Allahabad

JudgmentDate
28 January, 1964
Judges
  • M Desai
  • R Pathak