Piccadily Sugar and Allied Industries Limited vs State of Punjab and Others

M.M. Kumar, J.—This order shall dispose of a bunch of petitions CWP Nos. 8554, 8557, 8578, 8618, 8620, 8622 and 8625 of 2009 because a common question of law raised is whether reassessment framed by the assessing authority is within the parameter of limitation provided u/s 11A of the Punjab General Sales Tax Act, 1948 (for brevity, "the Act"). It may be noted that the period of five years has been prescribed u/s 11A(1) of the Act for reopening of an assessment order. The facts are being referred from CWP No. 8554 of 2009. In this case, the assessment order was passed on June 4, 2004 (P5) in respect of assessment year 1998-99. The petitioner is a company incorporated under the provisions of the Companies Act, 1956 and engaged in the manufacturing of "white crystal sugar" at its sugar mill situated in Village Patran, District Patiala. Sugar is manufactured from sugarcane and its bye-products are molasses, bagasse, etc. The bardana is purchased by the petitioner to pack and store the "white crystal sugar" manufactured by it. On March 7, 1991, the Ministry of Industries, Government of India, issued a letter of intent in favour of the Punjab State Federation of Cooperative Sugar Mills Ltd., for manufacturing of "white crystal sugar". Subsequently on February 22, 1994, the petitioner was permitted to implement the said letter of intent. The petitioner has claimed that "sugar" is amongst the items mentioned in Schedule B of the Act and exempted from payment of tax.

It has been pointed out that on September 28, 1992, the respondent-State of Punjab notified a "Package of incentives-1992" with a view to augment new industrial investment in the State. Various incentives in the form of investment and sales tax exemption were offered to new industrial units being set up on or after October 1, 1992. As per clause 7(ii) of the "Package of Incentives-1992", new industrial units in the areas specified as B category areas were fully exempted from the payment of sales tax for a period of seven years subject to the condition that the total sales tax exemption would not exceed 150 per cent of their Fixed Capital Investment (FCI). On February 1, 1993, the respondent-State of Punjab issued a notification contemplating the "Punjab Industrial Incentive Code-1992" (for brevity, "the Code"). Clause 3.2 of the Code was applicable to such units which come into production for the first time on or after October 1, 1992. Clause 6 of the Code prescribes the eligibility conditions for incentives whereas clause 8 deals with exemption from sales tax and its sub-clause (8.3) lay down the procedure for availing of such exemption. In annexure I appended to the "Package of Incentives-1992" and in annexure II appended to "the Code", certain goods were specified on which incentives were not available. It has been submitted on behalf of the petitioner that sugar and its bye-products such as molasses and bagasse, as well as bardana have not been included in the said lists.

On March 2, 1994, a certificate of registration under the Act was issued in favour of the petitioner by the assessing authority wherein the nature of its business has been specified as "manufacturing of sugar, molasses and allied goods" (P1). It has been urged that the sugar mill of the petitioner started production on December 21, 1994 and on November 21, 1995. The General Manager, District Industries Centre, Patiala, issued a "certificate of eligibility" in favour of the petitioner for the grant of incentive of sales tax exemption in terms of "the Code". It was granted sales tax exemption for a period of 84 months commencing from December 21, 1994 for the maximum amount of Rs. 36,68,43,000 (P2). On December 16, 1995, the petitioner submitted an application in form ST (D & E) to the Assistant Excise and Taxation Commissioner, Patiala, for the grant of exemption certificate u/s 10A of the Act as well as the provisions of the Punjab General Sales Tax (Deferment and Exemption) Rules, 1991, which have been framed under the Act. In column (f) of the said application the petitioner has given the description of items manufactured by it as "White crystal sugar and other allied products". The exemption was sought from payment of sales tax for 84 months for an amount of Rs. 36,68,43,000 (P3). On February 5, 1996, the Assistant Excise and Taxation Commissioner, Patiala, issued the exemption certificate granting exemption to the petitioner from payment of sales tax from December 21, 1994 to December 20, 2001 for an amount of Rs. 36,68,43,000 (P4). Thereafter, the petitioner started claiming and it was granted exemption from payment of sales tax on sale of the by-products of "white crystal sugar", i.e., molasses, bagasse, etc., manufactured at its sugar mill. It was also granted exemption from payment of sales tax on Sale of bardana from its sugar mill.

On June 4, 2004, the assessing authority passed an assessment Order in respect of the assessment year 1998-99 and tax exemption to the tune of Rs. 2,08,18,623 was allowed (P5). While passing the said assessment order the assessing authority has also taken into account the sale of bardana and molasses by the petitioner during the year.

It has been pointed out that on October 3, 2002 the petitioner was declared as a sick unit by the Board for Industrial and Financial Reconstruction (BIFR) under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (for brevity, "SICA") and Oriental Bank of Commerce was appointed as the operating agency to work out a scheme for its rehabilitation (P6). On May 28, 2008, the State Bank of Patiala was appointed as the operating agency in place of Oriental Bank of Commerce (P7).

The petitioner has stated that in December 2008, the Excise and Taxation Officer-cum-Designated Officer, Patiala-respondent No. 4 issued undated notices alleging that it has wrongly availed of exemption of tax on the sale of bardana, bagasse and molasses, which it was not entitled to avail of because sales tax exemption was available on the manufacture of "white crystal sugar" only. Separate notices in respect of the assessment years 1994-95, 1995-96, 1996-97, 1997-98, 1998-99, 1999-2000 and 2000-01 were issued calling for the petitioner on December 10, 2008 to explain why the tax charged on the sale of items which were not admissible to exemption be not recovered along with penalty. The detail in this regard is discernible from the following table:

The explanation furnished by the petitioner in the reply dated December 17, 2008 (P9) to the said notices did not find favour with the assessing authority-respondent No. 3. On March 31, 2009, the assessing authority passed separate orders in respect of each of the assessment years rejecting the contention raised by the petitioner holding that the tax due on the sale of bardana and by-products of "white crystal sugar" could not have been adjusted from the exemption available to the petitioner as the exemption was only in respect of "white crystal sugar". The petitioner was asked to deposit the total amount of Rs. 1,41,32,205 for the assessment years 1994-95 to 2000-01. On March 31, 2009 itself the assessing authority issued notice(s) u/s 11 of the Act in form ST XVI, directing the petitioner to deposit the tax on or before April 30, 2009. The abovementioned order(s) and notice(s) dated March 31, 2009 are subject-matter of challenge in this bunch of petitions.

In the written statement filed on behalf of respondent Nos. 1, 3 and 4 the factual position has not been disputed. It has been stated that on realising that the petitioner was not entitled to any exemption from the payment of tax on the sale of bardana, i.e., packing material and molasses, the assessing authority has rightly passed the orders dated March 31, 2009. An objection has been raised that the petitioner has not availed of the remedy of filing of appeal provided u/s 20(1) of the Act by depositing 25 per cent of the demand u/s 20(5) of the Act. Thus, the petitions are liable to be dismissed having been filed without exhausting the alternative remedy available under the statute. It has further been asserted that since the exemption certificate to the petitioner was issued only in respect of "white crystal sugar", therefore, exemption from payment of tax on any by-product could not have been granted. In para 18 of the reply on merits it has been submitted that the assessment of the petitioner for the assessment year 1998-99 was completed on June 4, 2004 (P5). However, the then assessing authority had wrongly adjusted the demand against the exemption amount available to the petitioner because the exemption was granted only in respect of "white crystal sugar". Only the adjustment in respect of the tax oh bardana and molasses was disallowed by order dated March 31, 2009. It has been emphasised that the order dated March 31, 2009 is not an order of assessment.

Mr. D.S. Patwalia, learned counsel for the petitioner, has raised many contentions before us. Some of his contentions are based on protection of umbrella given to the sick industry u/s 22 of "SICA". According to the learned counsel the petitioner-company has been declared as a sick company and proceedings before BIFR had continued by appointing various operating agencies to work out a scheme for its rehabilitation, which included the Oriental Bank of Commerce and then State Bank of Patiala. He has also made submissions on merit of the controversy by arguing that molasses, bagasse and bardana would be covered by expression "allied products" for which exemption had been granted. However, his star argument is that the notice issued in December 2008 calling upon the petitioner to appear on December 10, 2008 (P8) for reassessment of the assessment order(s) in respect of assessment years 1994-95 to 2000-01 would be barred by time. According to the learned counsel u/s 11A of the Act reassessment could be ordered within a period of five years following the close of the year for which the turnover is proposed to be reassessed. It has been emphasised by Mr. Patwalia that the notice issued to the petitioner is undated, yet it is clear that the petitioner was asked to appear on December 10, 2008. He has maintained that in respect of the assessment year 2000-01 the closing date was March 31, 2001 and five years would come to an end on March 31, 2006. It has, therefore, been urged that no reassessment after expiry of five years would be permissible as per the provisions of section 11A of the Act.

As per contra, Ms. Sudeepti Sharma, learned Deputy Advocate-General, Punjab, has made submissions on the merit of the controversy and has argued that no exemption was permissible on molasses, bagasse and bardana. According to her a patently unlawful exemption has been secured by the petitioner and in such circumstances the power of revision could be exercised and assessment can be re-opened for deleting the unlawful exemption secured by an assessee. She has also made submission controverting the petitioner''s contention based on the provisions of "SICA". On the question of limitation of five years as engrafted by section 11A of the Act, learned State counsel has submitted that the notice issued in December 2008 has to be regarded within limitation because the assessment order was passed on June 4, 2004 (P5). According to her the period of five years would commence from the date of passing of the assessment order and not from the end of the period of assessment year for which reassessment is sought to be made. Another submission made by the learned counsel is that the petitioner should have availed of the remedy of appeal and could not approach this court by way of writ petition.

The question of law which emerges for determination in these proceedings is whether the notice issued for reassessment in December 2008 would be within the period of limitation as provided by section 11A or section 21 of the Act. It would, thus, be necessary to examine the provisions of section 11A of the Act, which deals with the subject of reassessment and the same reads as under:

11A Reassessment of the tax--(1) If in consequence of definite information which has come into his possession, the assessing authority discovers that the turnover of the business of a dealer has been under-assessed or escaped assessment in any year, the assessing authority may, at any time within five years following the close of the year for which the turnover is proposed to be reassessed and after giving the dealer a reasonable opportunity, in the prescribed manner, of being heard, proceed to reassess the tax payable on the turnover which has been under-assessed or has escaped assessment.

(2) An assessing authority or any such authority as may be prescribed, may, at any time, within one year from the date of any order passed by him and subject to such conditions as may be prescribed, rectify any clerical or arithmetical mistake apparent from the record.

A perusal of the aforesaid provision would show that u/s 11A reassessment could be made if there is definite information in possession of the assessing authority that the turnover of the business of a dealer has been under-assessed or escaped assessment in any year then by giving a reasonable notice within five years following the close of the year for which the turnover is proposed to be reassessed, the assessing authority may proceed to reassess the tax payable on the turnover which has been under-assessed or has escaped assessment. According to sub-section (2) of the aforesaid provision an assessing authority within a period of one year from the date of any order passed by it, could rectify any clerical or arithmetical mistake apparent from the record. Thus, on a bare perusal of section 11A(1), the period of five years has to commence following the close of the year for which the turnover is proposed to be reassessed. Moreover, the reassessment has to be made on the basis of definite information that the business of the dealer has been under-assessed or has escaped assessment in any year. Accordingly, we find merit in the contention raised by Mr. Patwalia that the period of five years has to commence from March 31, 2001 the end date of the last assessment year 2000-01, which is the latest year of reassessment commencing from 1994-95 to 2000-01. The notice(s) issued in December 2008 would, thus, be far beyond the period of five years. Therefore, no notice could have been issued even if we presume that the other two conditions for exercise of jurisdiction u/s 11A of the Act are satisfied, namely, (i) there was under-assessment; and (ii) some turnover has escaped the assessment. On this score the assessing authority was denuded of its jurisdiction to issue any notice in December 2008 after a period of over seven years and eight months. If the period of first assessment year for which reassessment is sought to be made is taken to be March 31, 1995 then the assessment has been sought to be reopened after 13 years and in respect of the next assessment year after 12 years and onwards. It is a clear case where the assessment is sought to be reopened long after a period of five years.

Even when we examine the provisions of section 21 of the Act which permit exercise of revisional jurisdiction by the Commissioner or any other officer who is clothed with such power conferred by the Government by issuance of valid notification, still there is no escape from the conclusion that even revisional jurisdiction could not have been exercised. Section 21 of the Act is set out below for ready reference:

Revision.--(1) The Commissioner may of his own motion call for the record of any proceedings which are pending before, or have been disposed of by any authority subordinate to him, for the purpose of satisfying himself as to the legality or propriety of such proceedings or order made therein and may pass such order in relation thereto as he may think fit.

(2) The State Government may by notification confer on any officer, the powers of the Commissioner under sub-section (1) to be exercised subject to such conditions and in respect of such areas as may be specified in the notification.

(3) A Tribunal, on application made to it against an order of the Commissioner under sub-section (1) within ninety days from the date of communication of the order may call for and examine the record of any such case and pass such orders thereon as it thinks just and proper.

(4) No order shall be passed under this section which adversely affects any person unless such person has been given a reasonable opportunity of being heard.

It may be true that no period of limitation has been prescribed in section 21 of the Act for exercise of revisional jurisdiction, however, the issue is no longer res integra because in paras. 17, 18 and 19 of the judgment rendered by the honourable Supreme Court in the case of State of Punjab and Others Vs. Bhatinda District Coop. Milk P. Union Ltd., their Lordships of the Supreme Court has engrafted a five years period of limitation in section 21 of the Act holding that if no period of limitation has been prescribed then the statutory authority is obliged to exercise jurisdiction within a reasonable period. After citing section 21, in paras 17, 18 and 19 it has been observed that the maximum period of limitation for exercise of revisional jurisdiction has to be five years. The observations made by their Lordship in the aforesaid paras read as under (page 185 in 10 VST):

A bare reading of section 21 of the Act would reveal that although no period of limitation has been prescribed therefore, the same would not mean that the suo motu power can be exercised at any time.

It is trite that if no period of limitation has been prescribed, statutory authority must exercise its jurisdiction within a reasonable period. What, however, shall be the reasonable period would depend upon the nature of the statute, rights and liabilities thereunder and other relevant factors.

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.

The view of the honourable Supreme Court has been followed and applied by a Division Bench of this court in the case of food Corporation of India v. State of Punjab (GSTR No. 16 of 1998, decided on January 13, 2009). Therefore, even if we construe the notice issued in December 2008 as a notice u/s 21 of the Act for exercise of revisional jurisdiction, it would also be required to be issued within a period of five years from the date when the assessment year comes to an end in respect of which a revisional jurisdiction is sought to be exercised.

As a sequel to the above discussion, the order of reassessment dated March 31, 2009 (P10) is hereby quashed. Consequently, the demand raised in the order of even date (P11) is also quashed. It is pertinent to mention that the order in all the cases are of the same date and even the annexures numbers are same although the year of assessment is different, as is indicated in front of case number CWP Nos. 8557, 8578, 8618, 8620, 8622 and 8625 of 2009. Therefore, needless to say that the above reasoning would follow in all the cases. A photocopy of this order be placed on the files of connected petitions.