G.M.Zaroo vs Commissioner, Sales Tax and Ors.

Orders dated 21.7.1983, 20.9.1983 and 31.5.1984 are impugned in this writ petition. By a writ of certiorari they are prayed to be quashed.

The facts pleaded in the petition lie in brief compass.

The petitioner is dealing in manufacture and sale of guns under the name and style of M/S. Zaroo Gun Factory. He is said to have set up a small

scale industry which is registered with the Directorate of Industries and Commerce. Liability of the petitioner to pay the sales tax is to be

determined by the respondents under the provisions of Sales Tax Act and the notifications issued thereunder. It is contended that the assessing

authority has not assessed the sales tax in accordance with law but its assessment was at whims of the assessing authority. Petitioner is said to have

been told that sales tax was recoverable from the item manufactured by him on the second counter sale, i. e from the dealers. In 1981 no sales tax

was recovered from the petitioner but liability was fixed on registered dealers. During the accounting year 197879 a dealer namely M/S. G.M

Habullah was assessed to sales tax on account of sale of guns manufactured and sold by the petitioner to said person. Petitioners liability was fixed

for the payment of sales tax for sale of guns to the said dealer.

Proceeding on the assurance and practice of the department that sales tax is to be recoverable from the dealers and not from the manufacturer

petitioner did not charge or collect any sales tax from the sale of the guns manufactured by him. Petitioner, however, was served with a notice

under section 7 (2) of the General Sales Tax Act dated 31.12.1982 by the respondent No: 3 whereby he was asked to furnish the amount of gross

and texable turn over as recorded by the petitioner in his books of accounts and other records to enable the respondent No: 3 to reassess the tax

liability of the petitioner. This was done because in the opinion of the respondent No: 3, there has occasioned an escapement of tax liability which

was brought to the light by the audit party during the course of audit. In response to the said notice petitioner appeared before the respondent No:

3 and objected to the proceedings of the reassesment oil the ground that these proceedings were without authority, law and against the principles

of law. The respondents, however, did not agree with the petitioner and they passed orders determining the sales tax liability of the petitioner which

is said to be misconceived.

The respondents are said to be labouring under misconception. Prior to the coming into force of SRO 267 of 1978 dated 15.5.1978, there was

a notification that in case of sales effected to the registered dealers, liability was that of the petitioner. By virtue of orders dated 31.5.1984 orders

of respondent 2 and 3 have been confirmed which imposes a liability of payment of sales tax on the petitioner and same is said to be bad for the

following reasons:

a) Provisions of section 7 (ii) of the Sales Tax Act are not applicable to the petitioner. Basis of assessment order dated 21.7.1983 is without

authority of law and offends Articles 265 & 300 of the Constitution of India.

b) Petitioner having throughout proceeded upon the basis of the view adopted by the department that registered dealers are liable to pay the tax

and not the petitioner.

c) that if the practice set up by the department itself is not to be followed and some other practice is to be followed, that will operate prospectively

and not retrospectively.

In response to the writ petition, the respondents have filed the reply affidavit. It is stated in the reply that the petitioner enjoyed exemption from

payment of tax till 4.7.1978 under the exemption licence issued under SRO 267 dated 15.5.1978. By virtue of SRO 195 dated 31.2.1978 issued

under section 7, subsection 4 of the J&K General Sales Tax Act he was liable to tax on all the sales made by him to be registered dealers or

others. The assessing authority is said to be creation of statute and he has to follow the law. The assessment proceedings are to be completed and

conducted in accordance with the provisions of law. The exemption granted to the petitioner was valid only for ten years from the date of

registration with the department of Industries and commerce or from the date of the manufacture/production of goods which ever was earlier and

was deemed to come into force from 5.7.1968. Exemption expires after lapse of ten years and petitioner became liable to pay tax from 5.7.1978.

The assessment for the Accounting year 197879 was done under section 7 (8) and erroneously sales made to the dealers were not assessed to the

knowledge of the assessing authority that the taxable turn over has escaped the assessment it proceeded under the provisions of Sales Tax Act.

The assessment of tax on the turn over is governed by SRO 195 dated 31.3.1978. Before the said SRO i. e SRO 195 was issued, petition was

different. Guns manufactured in the state and sold to registered dealers were liable to tax when the sale of such goods was made by the registered

dealers. The assessing authorities have to follow the SRO. After the period of exemption, petitioner was liable to pay the tax. It is further

contended that right of being heard was provided to the petitioner. Proceedings were conducted within the frame work of law. The respondents

have stated that it is a case of escaped turn over which could be rectified under the provisions of law.

I have heard learned counsel for the parties.

Learned counsel for the petitioner have submitted that arrears if any, in the present case seem to have been pointed out by the audit and on the

basis of audit, notice for reassessment was issued to the petitioner and the impugned orders are, therefore, bad because there was no personal

satisfaction of the assessing authority as regards incorrectness of the turnover. It is submitted that the assessing authority has to form his opinion

and he cannot make opinion of the audit party as the basis for reassessnent under the provisions of General Sales Tax Act, for determining the tax

liability on account of the sale of goods. Reliance in this behalf is placed on a Madras authority given in Commissioner of Income Tax Vs M/s

HackbridgeHewittic and Easun Limited decided on 8.3.1985. The said authority relates to the powers of Income Tax officer under section 147 (b)

of the Income Tax Act. It was held on the basis of the Supreme court judgment in the Indian and Eastern Newspaper Society Vs C1T that

information contemplated by section 147 (b) of the Income Tax Act is to be fresh information and Income tax officer must come to know of that

information subsequent to the assessment order. It was further observed that if the facts are already on record and income tax officer is aware of

those facts to which he applies provisions of law erroneously and if such error is pointed out to the Income tax officer by the audit note, it would be

information as to the law, but it will not be an information of a fact.

Relying on this judgment the learned counsel for the petitioner has submitted that principle laid down on the basis of provisions of Income Tax

would apply to the present case also because audit note would not relate to the information of a fact and on that basis assessing authority under the

Sales Tax Act cannot reopen the assessment which has already concluded.

Another authority on which the learned counsel for the petitioner has relied is reported in Tax Gazette of 1987 (Rishab Kumar and Sons Vs

State of U.P and others) reported in Supreme Court cases (S.T): 67. The observation made in this case is that where the assessee is misled by the

orders of the authorities and he has not been able to pass on the liability to the purchasing dealers or the consumers, it has resulted in Rs. 30, 000/

less tax liability. Relying on Collector of Customs and Central Excise and Anr Vs Oriental Timber Industries (1985) 3 SCC/and Union of India and

ors Vs Godfrey Philips India Ltd etc. (1986) (1985) 4 SCC 369, it was observed that in the special facts and circumstances of the case, the

assessee could not be made to pay the amount involved in the three years in question and the authority of the Supreme court was not to be a

precedent for other cases.

Learned counsel for the respondent's contention was very brief and precise. He submitted that there was no exemption beyond certain date.

Exemption was granted by the assessing authority inadvertantly. After it was ""pointed out by the Audit that exemption was not to be made to the

manufacturer in regard to the payment of sales tax, reassessment was ordered.

It is borne out from the record that the exemption which was granted to the petitioner in regard to the payment of sales tax had expired on

5.7.1978. It had commenced from 5.7.1968. However, for the assessmsnt year pertaining to 197379 exemption was granted to the petitioner

which he was not entitled under law. The position during the exemption period was that manufacturer was not liable to pay the sales tax. The sales

tax was to be recovered at second point. i. e from the dealer who had purchased the guns manufactured by the petitioner and effected sale thereof.

After the expiry of ten years manufacturer also was liable to pay the sales tax on the amount of sale of guns to the dealer. The dealers case and the

manufacturers case in the payment of sales tax was governed by the provisions of the Sales Tax Act and point of sale by the two i. e by the

manufacturer and also of the manufactured guns and with regard to the guns which the dealer had received from the manufacturer was to be

determined at the time of point of sale by the two. After the exemption period of sales tax was over, the manufacturer could not escape liability of

payment of sales tax. In this connection, Mr. Riaz Rasool made reference to the two SRO i. e SRO 267 of two different dates. According to him

the language of the SROs will clinch the issue because after ten years no exemption can be claimed by the petitioner.

Sales tax was not collected previously during the exemption period from the petitioner because he had been granted exemption in the way of

the authorities to collect the sales tax from the manufacturer of the goods and it was not correct to say that sales tax was to be collected at second

point i. e when sale was made by the dealer and not when the sale was made by the manufacturer.

Section 7 of the General Sales Tax deals with the return to be filed by the assessee and assessment to be made by the assessing authority. Sub

section 4 of the said section provides that if the assessing authority is satisfied that any return submitted under subsection (1) is correct and

complete, he shall assess the amount of tax dues from the dealer on the basis of such return.

Subsection 6 of section 7 authorises the assessing authority to serve a notice to a dealer in the prescribed manner requiring him on the date and

place specified therein either to attend in person or produce or cause to be produced any evidence on which such dealer may rely in support of

such return about which the assessing authority is not satisfied and about which he has doubt of being correct and complete.

Subsection 8 of section 7 provides that if the dealer fails to comply with the provisions of subsection (6), the assessing authority shall within

four years of the expiry of such period proceed to assess to the best of his judgment the amount of tax if any due from the dealer.

Under subsection (1) dealer may be required to furnish returns of his turnover and under subsection 2 dealer is given right to correct omission

or error in any return furnished by him by submitting revised returns at any time before the assessment is made on the original returns. Then the

Assessing Authority has certain duties to discharge which are given in various subsections of section 7.

From the provisions of Sales Tax Act it appears that the assessing authority has the competence to ask for the revised turn over where he is

satisfied that there has occasioned escapement of sales tax in particular case. The only condition laid down in law is that he must be satisfied that

accounts are to be checked and turn over scrutinized and there has been escapement of sales tax. The satisfaction may be assumed by him from

any source.

Learned counsel for the petitioner have urged that in the past petitioner was not assessed to sales tax. Sales tax was being collected from the

dealers who would purchase the manufactured guns from the petitioner. As a consequence of this petitioner did not collect sales tax from the

dealers when he made the sale of the guns to them. This practice has misled the petitioner and on the basis of audit report assessing authority

cannot fasten the liability on the petitioner.

Both the aforesaid contentions of the petitioner are liable to be over ruled. The petitioner was not subjected to payment of sales tax because

there was exemption for ten years which had commenced from 5.7.1978. Thus the bonafide of the petitioner that he was not to pay the sales tax

as a matter of rule as not correct.

Petitioner was aware that the exemption from the payment of sales tax was granted to him on the manufactured goods only for ten years and

beyond that he was not entitled to any exemption. If any exemption was granted to him beyond ten years that was inadvertant and erroneous which

could be corrected by the Assessing authority.

The audit report may have pointed about the fact of law i. e that payment of sales tax was exempted in relation to the petitioner for ten years

only and thereafter he was exempted from payment of sales tax. This can constitute an information about law and on the basis of this information

assessing authority was entitled to know the facts about the sales made by the petitioner during the period 197879 i. e after the period o f

exemption was over. In order to know the facts he could issue notice and examine the accounts and turn over of the petitioner and if the petitioner

had made sales which had escaped payment of sales tax, same could be assessed to sales tax notwithstanding the fact that previously they were

not subject to payment of sales tax. After lapse of ten years from date of exemption the position had altered and there was no right in the petitioner

to claim exemption from the payment of sales tax in relation to sales which he made after 5.7.1978.

The principle of section 147 (b) of the Income Tax has no relevance for considering the controversy in this case. It is well settled that in

construing a particular statute, principles of other statutes cannot he imported. Income tax liability and its determination is different than the liability

and determination of the sales tax assessed on sale of goods which are not exempted from the payment of sales tax.

In this view of the matter the authority Commissioner of Income Tax Vs M/S. Hackbridge Hewittic and Easun Limited decided on 8.3.1985

by the Madras High court (Supra) has no application to the facts of this case.

Rashid Kumar and sons Vs State of U.P and ors reported in Tax Gazette of 1987 (supra) also would not be applicable to facts of the present

case because in that case as a matter of course sales tax was not assessed for three years which was sought to be recovered later on. There was

no exemption granted by any statutory order under the Sales Tax Act and in that view of the matter supreme court did not permit recovery of Rs.

30, OOO/ by way of sales tax for three years which was sought to be recovered. It, however, sounded a note of caution that in view of the

peculiar facts of the order made in the case before the Supreme court would not be treated as a precedence for other cases.

The matter would be different if the petitioner, without there being any provision for payment of sales tax on the sale of manufactured goods,

would have been granted the relief from the payment of sales tax at the first point of sale and tax was to be collected from the dealer at the second

point of sale. It could be construed that the petitioner was misled by the assurance given to him by the respondents in the matter of assessment of

sales tax. But where the petitioner is given exemption under law for a specific term, after the expiry of that he cannot be heard to say that he was as

a matter of course entitled to tax exemption because he did not realise the tax of manufactured goods when he made the sale.

The respondents in the present case have acted in accordance with the provisions of sales tax Act. Therefore, any action taken by them with

regard to the assessment of sales tax and its determination cannot be said to be bad in law.

For what has been stated hereinabove, I find no force in this writ petition which is dismissed hereby. There will be no order as to costs.