Sardar Trading Corporation vs Commissioner of Sales Tax

Kania, J.—This is a reference on a case stated by the Sales Tax Tribunal u/s 61(1) of the Bombay Sales Tax Act, 1959 (referred to

hereinafter as ""the said Act""). The question which has been referred to us for our determination is as follows :

Whether on the facts and in the circumstances of the case, the Tribunal was correct in upholding the order of forfeiture passed by the Sales Tax

Officer and confirmed by the Assistant Commissioner ?

The relevant facts necessary for the purpose of determination of the question referred to us are as follows :

The applicant-firm was a registered dealer under the said Act and dealt in soap at Dhulia. It was the sole selling agent in respect of soap for some

manufacturers who gave it a trade discount and it was required to sell the soap supplied by these manufacturers at an agreed price. The

manufacturers were themselves registered dealers under the said Act. Soap being one of the goods covered by Schedule C, the applicant did not

have to pay any tax on the sale of such goods by the applicant to its customers. It may be mentioned here that when the aforesaid manufacturers

supplied soap manufactured by them to the applicant, they had to pay the sales tax on this soap and the amount paid by them was recovered from

the applicant either as such or by way of addition to the price. In the bills issued by the applicant to its customers, it charged an amount equal to the

amount of sales tax paid by it to the manufacturers in respect of the goods sold to its customers and against this item, it was narrated that it was ""in

respect of sales tax"" or ""in respect of tax"". The Gujarati word used in the place of ""in respect of"" was ""babatna [Gujarati word is transliterated

here]"". During the period 5th November, 1964 to 20th October, 1965 the amount so collected by the applicant came to Rs. 4,252.50. The Sales

Tax Officer concerned held that this amount collected by the applicant was in contravention of section 46(2) of the said Act and by a separate

order, the Sales Tax Officer forfeited this amount. The order of the Sales Tax Officer in respect of forfeiture was confirmed in appeal by the

Assistant Commissioner. The applicant preferred a second appeal against the order to the Sales Tax Tribunal. The Tribunal, following its own

judgment in Second Appeal No. 426 of 1969 - Messrs. Burmah Shell Oil Storage and Distributing Co. v. State of Maharashtra, delivered on 30th

September, 1970 set aside the forfeiture order. A perusal of this judgment makes it clear that the forfeiture was set aside on the ground that the

charge on which the forfeiture was based was not framed properly in the notice in form 29 which was mandatorily required to be given before

proceedings were taken for forfeiture by way of penalty and this is not disputed before us. This is also clear from the statement of facts given by

the Tribunal. The order of forfeiture was set aside by the Tribunal on 9th November, 1970. On 26th May, 1973 the Sales Tax Officer concerned

issued a fresh notice in the amended form 29. This notice was served on the applicant on 3rd July, 1973. Thereafter the Sales Tax Officer passed

a fresh order for forfeiture. The applicant preferred an appeal against this order to the Assistant Commissioner who dismissed the same. The

applicant then came to the Sales Tax Tribunal by way of a second appeal. The contentions urged by Mr. Joshi who appeared before the Tribunal

on behalf of the applicant herein were that the order of forfeiture which was passed on 4th January, 1974 was bad as it was barred by the law of

limitation, and that what the assessee had collected was not as tax, but what it had collected was merely expenses. It was contended by Mr. Joshi

before the Tribunal that the aforesaid amount of Rs. 4,252.50 had been collected not ""as sales tax"" but ""in respect of sales tax"" and that this would

show that it was collected not as tax which the applicant had to pay on the transactions of sales by the applicant but the tax which it had to

reimburse to the manufacturers from whom it had purchased the soap in question. All these arguments were rejected by the Tribunal. It is the

correctness of this decision of the Tribunal which is sought to be tested by way of the question before us.

The first submission of Mr. Joshi was that the order of forfeiture made by the Sales Tax Officer was beyond his jurisdiction as the earlier order

of forfeiture had been set aside by the Tribunal without any direction remanding the matter to the Assistant Commissioner of Sales Tax or to the

Sales Tax Officer and in view of this, the earlier order of the Tribunal setting aside the forfeiture became final and the Sales Tax Officer had no

further jurisdiction to levy any penalty. In our view, this submission does not deserve to be accepted. A perusal of the facts makes it clear that the

earlier order of forfeiture was set aside by the Tribunal not on any substantial ground but because a procedural requirement essential to confer

jurisdiction on the Sales Tax Officer to make the order of forfeiture was not complied with. It may be mentioned in this connection that, at that

time, the retrospective amendment to sub-section (2) of section 46 of the said Act had not been enacted and form 29 did not contemplate the

collection by a registered dealer of tax in excess of what he was required to pay under the said Act. This was clearly a procedural defect and the

defect was remedied by the Sales Tax Officer when he issued a fresh notice in form 29 as amended on 9th August, 1969 complying with all the

legal requirements. We fail to see how the Sales Tax Officer was barred in law from doing this. In fact, the argument advanced by Mr. Joshi, as

aforesaid, has been clearly negatived by a Division Bench of this Court in Commissioner of Sales Tax v. Vansal and Vansal Pvt. Ltd. [1981] 48

STC 419. The question which arose for determination in that reference was the same as the question before us. In that case, the Sales Tax Officer

had held that the collection of tax by the assessees was in contravention of the provisions of section 46(2) of the said Act and the Sales Tax Officer

had forfeited the excess amount collected under the provisions of section 37 of the said Act. Before passing the order of forfeiture, the Sales Tax

Officer had given a notice u/s 37 in form 29 as then prescribed. The notice charged the assessees on the ground that they, not being dealers liable

to pay tax under the Act, had collected tax. The Tribunal set aside the order of the Sales Tax Officer on the ground that the notice issued in form

29 was not a proper notice. Form 29 was amended on 9th August, 1969. It may be mentioned that the earlier order was passed by the Sales Tax

Officer on 9th May, 1967. Thereafter the Sales Tax Officer issued a fresh notice to the assessee u/s 37 in the amended form which mentioned the

ground of a person not being a registered dealer and liable to pay tax having collected tax as the ground for forfeiture. The question was whether

the omission of this ground from the prescribed form of notice prior to 9th August, 1969 could be said to give rise to any immunity from forfeiture

in favour of the assessee. It was held that since the giving of a notice u/s 37(2) is a procedural requirement any defect in the prescribed form of

notice could be subsequently remedied and a fresh notice in the amended form could be given before taking action under the provisions of that

section. In the case before us also, the earlier notice as well as the subsequent notice have been given u/s 37(2) of the said Act. This decision

negatives the contention raised by Mr. Joshi.

The next submission urged by Mr. Joshi was that the order of the Sales Tax Officer was barred by limitation. It was urged by him that u/s 35(1)

(c), the period of time within which reassessment must be made is limited to five years, and by analogy, this period should also be applied to an

order of forfeiture. It was urged by him that since the period to which the penalty related was the period commencing from 5th November, 1964

and ending on 24th October, 1965 no forfeiture could be levied after five years from 24th October, 1965. This submission has to be stated to be

rejected. No limitation has been provided for passing an order of forfeiture. It is nobody''s case that an order for forfeiture, in law, amounts to an

order of reassessment and it is impossible to import a period of limitation prescribed for reassessment into the provisions for forfeiture merely by an

analogy as suggested by Mr. Joshi. All that perhaps can be required is that the initiation of the proceeding for forfeiture must be within a reasonable

time and the order of forfeiture must be passed within a reasonable time.

It was next contended by Mr. Joshi that the order of forfeiture in this case was bad, because it was passed after an unreasonable delay. The

Sales Tax Tribunal set aside the earlier order of forfeiture on 9th November, 1970 and the fresh notice under form 29 was issued as late as 26th

May, 1973. According to Mr. Joshi, there was no reasonable explanation for this delay and considerable prejudice had been caused to the

applicant by reason of this delay as the applicant had not preserved its records and was not able to get the necessary evidence to support its case.

In our view, this submission is not open to Mr. Joshi at all. The order of the Tribunal makes it clear that the only contention raised by Mr. Joshi

before the Tribunal was that the order of forfeiture passed by the Sales Tax Officer, with which we are concerned, was barred by limitation. In fact

it was contended by the Departmental Representative that there was no period of limitation prescribed for an order of forfeiture, but it had to be

passed within a reasonable period, and this contention was accepted by the Tribunal. Thereafter, no contention was raised by Mr. Joshi that the

delay in the present case was unreasonable or had caused any prejudice to the applicant. Whether delay, in a given case, is unreasonable and has

caused prejudice or is likely to cause prejudice to a dealer has to be judged in the light of the facts and circumstances of the case. The

determination of that question requires some factual investigation, and hence the ground of delay or of prejudice caused by the said delay cannot

be allowed to be taken up in a reference for the first time in a case like this. Had such a contention been taken up earlier the Department might also

have pointed out the facts, and if necessary, lead evidence, if able to do so, to show that the delay was not unreasonable or it did not cause

prejudice to the applicant.

The final contention of Mr. Joshi was that the aforesaid amounts collected by the applicant were described in the bills as being in respect of tax

and this description, according to Mr. Joshi, should have conveyed to the customers that the amount which was being collected was not as sales

tax payable by the applicant or on account of sales tax payable by the applicant on the transaction of sale by it to its purchasers, but the amounts

which it had to pay to the manufactures to reimburse them for the sales tax payable by them. In our view, this contention is also unsustainable. The

relevant words used, as set out earlier, by the applicant in its bills would, in our opinion, clearly suggest to the purchasers to whom the bills were

issued that the amount in question was being collected as sales tax or on account of sales tax, namely, sales tax which was payable under the said

Act by the applicant on the sale to its customers. The said expression could not have been reasonably used to convey that the amount was being

collected to reimburse the applicant for the amount which it had paid on account of reimbursement of sales tax to the manufacturers who supplied

the soap.

In the premises, the question referred to us is answered in the affirmative and against the applicant.

The applicant to pay the costs of this reference to the respondent-dealer.