AI Structured Summary
Not yet generated for this judgment
Judgment
Veeraswami, J.—These are petitions for either prohibition or certiorari, as the case may be, in respect of proceedings initiated for re-
opening of assessments or orders of re-assessments under the provisions of the Madras Sales of Motor Spirit Taxation Act, 1939. As the
substantial point raised in these petitions turns on the validity of Rule 26(1) of the Madras Sales of Motor Spirit Taxation Rules, 1939, it will suffice
to notice the facts in one of them. In Writ Petition No. 667 of 1967, the Petitioner is Burmah-Shell Oil Storage and Distributing Company of India,
Limited. It has been carrying on business in selling goods taxable under the Act. For the months of April 1963 to March 1964, the Petitioner made
its returns accompanied by cheques for appropriate amounts payable as tax. They were evidently accepted by the Department. But by notices,
dated March 13, 1967, the Commercial Tax Officer III, Madras City, proposed to revise the assessment of those months under various heads, as
for instance, motor spirit claimed to have been used for own use, differential quantities not proved to have been transferred to stock points, satellite
depots outside the State, alleged transfers to other oil companies disclosed by the documents made available, deliveries to dealers in Madras State
from stock points outside the State involving transfer of property in Madras State, deliveries to consumers in Madras State from stock points
outside the State involving transfer of property in Madras State, quantities lacking proof for transfer to manufacturing products and sales omissions.
In addition, the Commercial Tax Officer, sought, by those notices, to withdraw the concession of 50 per cent till then granted under a Government
order, dated June 16, 1960, on the ground that the supplies had been made to different units other than the bunkers to ships. These petitions were
heard along with others filed by different companies carrying on business in similar goods and common argument was addressed which
concentrated on the validity of Sub-rule (1) of Rule 26.
The Madras Sales of Motor. Spirit Taxation Act, was enacted in 1939. In the same year, were enacted also by the Provincial Legislature as it
was then, the Madras General Sales Tax Act, 1939 and the Madras Entertainment Tax Act, 1939. The Act, with which we are concerned,
provided for the levy of tax on sales of motor spirit in the State of Madras. After the usual definition section and the provisions relating to the set up
of officers for the administration of the Act, Section 3 enjoined the charge. As substituted in 1958, it says that every wholesale dealer shall pay on
all sales of motor spirit effected by him and on all motor spirit used or transferred for consumption by him, a tax at the specified rate. It is obvious
that the charge being on the wholesale dealer, it is a single point tax. The next provisions are concerned with registration of importers and dealers
and obligation of retail dealers to keep books of account and submit returns Section 8 requires a wholesale dealer to submit to the Commercial
Tax Officer or any other officer prescribed for the purpose a return in the prescribed form and at prescribed intervals. u/s 6, the wholesale dealer
should pay the tax due along with his return. The standing orders issued under the Act provide for maintenance of assessment register by the
Department in which returns received will be posted. This register is required to be in the form prescribed. The returns are to be scrutinized by the
concerned officer before posting them in the assessment register as to whether they are correct in the light of the books of the Assesses. Where
they are not found to be defective, they are filed and the tax accompanying the returns is accepted and credited to the account of the Government
then and there. In other cases, the procedure to be followed is prescribed by Section 7(1) of the Act which reads:
If no return is submitted by an importer or a wholesale dealer under Clause (b) of Section 8 in respect of any month before the date prescribed in
that behalf, or if the return is submitted without paying the full amount of the tax due in the manner prescribed as required by Section 6 , or if the
return submitted appears to the Commercial Tax Officer to be incorrect or incomplete, the Commercial Tax Officer, shall, after making such
inquiry as he considers necessary, determine the amount of the tax due from such importer or wholesale dealer in respect of such month and the
amount so determined less the sum, if any, already paid by him shall be paid by the importer or wholesale dealer into a Government treasury within
fourteen days after demand is made therefor:
Provided that before taking action under this Sub-section, the importer or wholesale dealer shall be given a reasonable opportunity of proving the
correctness and completeness of his return.
This provision covers cases of no return or defective returns or returns, not accompanied by remittance of the tax due in the manner prescribed,
and as required by Section 6. In such cases, the Commercial Tax Officer having jurisdiction is required to make the necessary enquiry and
determine the amount of the tax due from the wholesale dealer. There are other provisions in the Act providing for powers of entry, and inspection,
as to levy of penalties, confiscation of motor spirit in certain cases, for arrest with or without warrant, as to investigation, and compounding
offences. There are also appeals and revision provided for, the former remedy available to any person aggrieved by any order passed under the
Act and the latter being the usual power of revision by the Board of Revenue to call for and examine the record or any order passed by any
subordinate officer in order to satisfy itself as to the legality or propriety of such order or any proceeding. We have then the rule making power
contained in Section 26. Sub-section (1) is again in the usual form in which it is found generally in taxing statutes, that is to say, power to make
rules to carry out the purposes of the Act. Sub-section (2) enumerates in Clauses (a) to (d) specific matters in respect of which rules can be
framed. Clause (e) is a residuary provision and relates to any other matter for which, there is no provision or no sufficient provision in the Act and
for which provision is, in the opinion of the State Government, necessary to give effect to the purposes of the Act. The rules framed are required to
be published in the official gazette. There is also power vested in the State Government to remove difficulties in giving effect to the provisions of the
Act or the rules made thereunder. For the first time on June 11, 1953 by an order of the Government, Rule 26 was promulgated of which the Sub-
rule (1) reads:
If, for any reason any transaction or series of transactions of a dealer had escaped assessment to tax in any year, the Commercial Tax Officer of
the district may, at any time, within three years next succeeding the year or any month or months of the year to which the tax relates, assess the tax
payable in respect of the transaction or transactions which had escaped assessment after issuing a notice to the dealer and after making such
enquiry as he considers necessary.
Thus, sub-rule is intended to bring to tax sales of motor spirit which had escaped assessment. In other words, it provides for re-opening of
assessment in effect and re-assessment of the sales which had escaped tax.
The contention for the Petitioners is that Sub-rule (1) of Rule 26 is invalid for want of statutory authority to make it. We have already referred to
the rule making power contained in Section 26 which does not make any specific enabling provision for making re-assessments of sales which had
escaped tax in the first instance. If at all the validity of the sub-rule can be supported, as learned Assistant ''Government Pleader has attempted to
show, it can only be with reference to Sub-section (1) of Section 26 or Clause (e) of Sub-section (2) of that section. But both these speak of the
purposes of the Act, and so, unless making re-assessment of escaped tax is one of them, it will not be possible to uphold the validity of the Sub-
rule.
In our view, the purpose of the Act have to be ascertained from the provisions of the Act themselves in the light perhaps of the preamble thereto
as well. The preamble, no doubt, says that the object of the Act is to levy tax on sales of motor spirit but no where the provisions of the Act
provide for re-assessment. The only relevant provision is Section 7(1) which as we have already mentioned, is directed to determination of the
amount of tax due in cases where the return is not accepted or no return has been made. We may take it that the procedure envisaged by Section
7(1) is for making a final assessment. Any provision which is directed to or enables determination of the amount of tax due may well be considered
to be one providing for final assessment. Even where a return accompanied by the tax due is accepted, the process must be regarded as a final
assessment. That this is so has been pointed out by the Supreme Court in Ghanshyam Das Vs. Regional Assistant Commissioner of Sales Tax,
Nagpur, which says that if the return was accepted and the amount paid was appropriated towards the tax due for the relevant period, it means
that there has been a final assessment in regard to the said period. But Section 7(1) does not go beyond providing for determination of the tax in
the few cases it covers and does not comprehend re-assessment proceedings in respect of sales which have escaped tax. Wherever'' enabling
power for that purpose is contemplated, the Legislature specifically provides for it. As an illustration, reference may be made to Section 19(2)(f) of
the Madras General Sales Tax Act, 1939. The Madras Entertainment Tax Act, 1939 did not contain any such enabling provision for making a rule
to make re-assessment and in view of it, Venkatadri J., in Sundararajulu Naidu v. Entertainment Tax Officer (1967) 1 M.L.J. 458 quashed a re-
assessment order. The learned Judge pointed out, if we may say so, rightly, that assessment of escaped income is well-known in taxation and
taxation laws specifically provide for such cases, and pointed to Section 19 of the Madras General Sales Tax Act 1939.
It is, however, strenuously argued for the Revenue that since the Act is intended to levy a tax on sales of motor spirit, it must be taken that one
of its purposes should necessarily be to bring to tax sales which have escaped charge. We are unable to uphold this contention because, in our
view, neither the preamble to the Act nor its provisions show reopening of assessment to bring to tax sales which have escaped charge as one of
the objects of the Act. State of Kerala v. M. Appukutty (1963) 14 S.T.C. 242, 246 (S.C.) sustained the validity of Rule 17 of the Madras
General Sales Tax Rules, 1939 because Section 19(2)(f) of the Madras General Sales Tax Act, 1939 contained specifically the enabling power to
make the rule. But the Supreme Court in that case further observed:
In any event as was said by the Privy Council in King Emperor v. Sibnath Banerji and others (1945) 72 I.A. 241 (P.C.) the rule-making power is
conferred by Sub-section (1) of that Section and the function of Sub-section (2) is merely illustrative and the rules which are referred to in Sub-
section (2) are authorised by and made under Sub-section (1).
In the absence of or apart from Section 19(2)(f), whether the Madras General Sales Tax Act, 1939 included as one of its purposes making of re-
assessment of escaped turnovers, did not fall to be enquired in that case. The question in each case is whether there is a stated or necessarily
implied purpose of the Act which would over a specific matter in respect of which a rule has been or can be made. We do not think that
HIRJIBHAI Vs. Income Tax OFFICER, RAJNANDGAON, AND ANOTHER., A.N. Lakshmana Shenoy Vs. The Income Tax Officer,
Ernakulam and Another, and The Income Tax Officer, Bangalore Vs. K.N. Guruswamy, assist the Revenue to sustain the validity of Sub-rule (1)
of Rule 26. In the first of them, the question was whether repeal covered provisions relating to re-assessment. The repeal had saved the local law
for purposes of levy, assessment and collection of income tax. The Madhya Pradesh High Court held that these words were comprehensive
enough to include re-assessment and, therefore, the powers as to re-assessment would stand saved A.N. Lakshmana Shenoy Vs. The Income Tax
Officer, Ernakulam and Another, was concerned with the interpretation of the words levy, assessment and collection in the Finance Act, 1950 and
in the context of a question very much similar to the one in HIRJIBHAI Vs. Income Tax OFFICER, RAJNANDGAON, AND ANOTHER., the
saving, by Section 13(1) of the Finance Act which used the expression levy, assessment and collection of income tax of the local laws in Part B
State was held to cover the power of making re-assessments in the respect of the relevant period. This was on the view that the expression levy,
assessment and collection were of the widest significance and embraced in their broad sweep all such proceedings for raising money by the
exercise of the power of taxation. In the same way in The Income Tax Officer, Bangalore Vs. K.N. Guruswamy, the Supreme Court held that the
object of the saving provisions there in question was obviously to make the prior law available in all cases in which the income was assessed or
was assessable according to the prior law before the given date and that it was difficult to see why only a part of the process of assessment should
be saved and the other part repealed. It should be seen that in these cases, the saving related to a law which provided for levy, assessment and
collection of taxes which expressly included also the procedure and power for re-assessment. When such a law was saved, it was viewed that
there was no reason why the expression used in the Finance Act, namely, levy, assessment and collection of income tax should not be regarded as
inclusive of the power and procedure for re-assessment. But that is not the situation in the instant cases. The question here is whether the Act itself
embraces the object of re-assessment. We have already indicated that the purpose should be indicated in the provisions of the Act read with its
preamble. We can discover no such purpose in the Act or its preamble as for re-assessment or re-opening an assessment, with a view to bring to
charge sales of motor spirit which had escaped tax when the returns were originally accepted.
On that view of the matter, it is clear that Sub-rule (1) of Rule 26 of the Madras Sales of Motor Spirit Taxation Rules, 1939 is invalid as it is not
authorized by any enabling rule-making power. If that sub-rule is out of the way, both the notices issued by the Commercial Tax Officer as well as
the orders of re-assessment made by him cannot stand. It becomes unnecessary, therefore, to go into the merits of the re-assessments.
The petitions are, therefore, allowed but in the circumstances, we make no order as to costs.