Sitaram Kamal Prasad vs The Collector of Sales Tax

Mohapatra, J.—This is a reference made by the Member, Board of Revenue, Orissa, under the provisions of Section 24 of the Orissa Sales Tax Act, 1947. This Court by the order dated 25th July, 1952 had called upon the Member, Board of. Revenue, to state a case on two questions of law framed by the Court running as follows

(i) Whether the assessments in question are legal and valid in the absence of an opportunity having been given under Sub-section (5) of Section 12 and

(ii) Whether in view of the absence of that opportunity and in view of the fact that the order of assessment by the Sales-tax Officer lies merely on the Government-order he statements made on the Assessee''s application for registration in January 1949, or the fact of that application itself, could be used as legal evidence against him, in proof of the liability for assessment for the three quarters in question.

In our order of the said date, we have made certain observations in paragraph 7 of the judgment running as follows

It may be added, in view of the contention raised by the learned advocate for the sales-tax authorities, viz., that in fact there has been an agreement to waive the procedure of the Act and that the Government order referred to in the Sales Tax Officer''s order is based on that agreement, that it will be open to the Revenue-Commissioner if he so chooses, to go into the question raised thereby and to find the correct facts, in their relation to this individual Assessee after giving him proper opportunity and if he finds that there was any such agreement waiving the procedure in the Act, he may consider whether he ought not to refer legality of such a waiver also for the decision of this Court.

The Member, Board of Revenue, in pursuance of the above observation, has also framed a 3rd question running thus-

Whether there has been an agreement to waive the procedure of the Act and the Government order referred to in the Sales-tax Officer''s order is based on that agreement and, if so, the effect of such a waiver.

The facts leading to this reference are extremely simple. The Petitioner is a betel leaf dealer. According to him, he started his-business in betel leaf from 17th April, 1948. He made an application for getting himself registered under the provisions of Section 9 of the Act on 7th January, 1949 and accordingly he was so registered. He submitted return for the quarter ending on 31st March 1949 on 29th April 1949. The Sales Tax Officer accepted the return and assessed him to tax for the quarter. Simultaneously with it, that is, on 14-10-49, he also assessed the Petitioner for three other quarters ending on 30th June, 30th September and 30th December, 1948 on the principle of assessment on best judgment on the basis of the return of sales for the quarter ending on 31st March 1949 which had been filed by the Petitioner. These assessments of the three aforesaid quarters, that is, 30th June, 30 September and 30th December, 1948 are being challenged by the Petitioner as being illegal on ,account of the non-observance of the mandatory provisions of Section 12(5) of the Act (Orissa Sales Tax Act, 1947).

It will be pertinent before proceeding further to quote Sub-Sections 4 and 5 of Section 12 of the Act

(4) If a registered dealer does, not furnish returns in respect of any period by the prescribed date the Collector shall, after giving the dealer a reasonable opportunity of being heard, assess, to the best of his Judgment, the amount of tax, if any, due from the dealer.

(5) If upon information which has come into his possession, the Collector is satisfied that any dealer has been liable to pay tax under this Act in respect of any period and has nevertheless wilfully failed to apply for registration, the Collector shall, after giving the dealer a reasonable opportunity of being heard, assess, to the best of his judgment, the amount of tax, if, any due from the dealer in respect of such period and all subsequent periods and the Collector may direct that the dealer shall pay by way of Penalty, in addition to the amount so assessed, a sum not exceeding one and a half times that amount.

It appears, on a reading of the provisions of the sections quoted above and also examining the scheme of the Act, that the provisions of Sub-section (5) of Section 12 are mandator and the non-observance of them will render the, Assessee illegal and invalid. From the statement submitted before us by the Member, Board of Revenue, it appears that in fact no notice was given to the Assessee before the Sales Tax Officer had passed the order of assessment in respect of the above three quarters. It also appears that in fact no opportunity was given to the Assessee of being heard before the said assessment was made.

Mr. B. Mohapatra, appearing on behalf of the sals-tax authorities however, strongly relies upon the antecedent facts leading to the assessment made by the Sales Tax Officer to show that in fact there has been no prejudice to the Assessee ad further that he had accepted the position and acted upon it. It appears from the Press Note dated 23rd December, 1948, that in fact some negotiations were going on prior to that dated between the Betel-leaves Dealers Association and the sales-tax authorities that is, the Government. The present Petitioner is a dealer carrying on hi, business in betel-leaf at Jaleswar. By the aforesaid Press Note the Government extended the time for getting the dealers to be registered under the provisions of the Act by 31st December, 1948 and further ordered that if any penal proceedings have been instituted against any dealer for his failure to get himself registered, these proceedings would be withdrawn. Nevertheless the present Petitioner along with several other dealers had not really filed their petitions for registration before the date fixed in the Press Note) that is, before 31st December 1948. Again in consequence of further negotiation between the Betel-leaves Dealers Association and the Government of Orissa a further order was passed on 30th April 1949. The relevant portions of the order appear in paragraph 2 of letter No. 6 236-F) dated 30-4-49) run as follows-

The following concessions will be allowed to the registered betel leaf dealers mentioned in the preceding paragraph) viz.,

(i) The recovery of the tax payable for the two quarters from the 1st October 1947 to the 31st March 1948, will be waived.

(ii) The dealers shall have to pay the tax from the 1st April 1948.

(iii) The arrears of tax for the three quarters from the 1st April 1948 to the 31st December 1948, will be computed as follows

(a) If a dealer has already paid his tax for any of the three quarters no further tax for the quarter or quarters will be payable by him.

(b) If the tax for any or all of the three quarters has not been paid, .the tax will be computed, as suggested in the petition on the basis of sales from the 1st January to the 31st March 1949.

(iv) Arrears of tax as above should be paid not later that the 15th June 1949.

(v) Dealers who have paid the tax for any of the quarters from the 1st October 1947 to the 31st March 1948 will, on application, get refund of the amount.

Mr. Mohapatra ralies upon two particulars clauses embodied in this paragraph 2 of the letter, the clauses being that the dealers shall have to pay the tax from the 1st April 1948 and further that if the tax for any or all of the three quarters has not been paid, the tax will be computed, as suggested in the letter on the basis of sales from the 1st January to the 31st March 1949. Me Mohapatra contends that the present assessments for the aforesaid quarters are based upon the clauses contained in the order dated 30th April 1949 which was based in consequence of the negotiation between the Betel-leaves Dealers Association and the Government. There is no, as found by the Member, Board of Revenue, direct proof that this particular Assessee (the present Petitioner) had ever taken part in the negotiations. He simply presumed that in fact he would be carrying on these negotiations along with the other members of the Association. It is clear to us that there being no legal evidence that in fact the present Assessee was a party to the order passed by the Government, the Assessee cannot be bound by the said order, and particularly to the extent that the order will override the mandatory provisions of the Act.

It cannot be suggested for a moment that on account of this order the Sales Tax Officer or the authorities are exempt from examining the individual cases on merits before passing an order of assessment under Sub-section (5) of Section 12 of the Act It is manifest to us that on account of non-observance of the mandatory provisions of this Sub-section, the Assessee has suffered serious prejudice. If really an opportunity was afforded to him before passing of the order of assessment he could be in a position to prove before the authorities that his turnover was much less than (sic-what it was) on the basis of which the assessment had been made. He could also prove before the authorities that in fact he is not liable to any assessment whatsoever on the basis of the position, as he alleges before us, that his business started only on 17.4.48. We are to make it clear that it is no part of our business to give a finding that in fact he has started his business on 17.4 .48, but nevertheless this feature is pertinent for our consideration for the purpose of showing that the Assessee has suffered serious prejudice on account of no opportunity having been given to him before the order of assessment was made.

Mr. Mohapatra, however, very strongly relies upon the petition filed by the Assessee before the Sales Tax Officer showing the date of commencement of his business as 17th April, 1947. It is manifest that it was open for the Assessee to have proved that it was on account of a mistake that this date had been inserted in the petition. He could have been in a position to prove to the satisfaction of the authorities that the date of commencement of his business is otherwise than what is contained in the petition. But the more important feature arising out of this is that in the absence of an opportunity given to the Assessee the petition cannot serve as the legal evidence for assessment for the quarters in question.

Mr. Mohapatra has relied upon two decisions Harmukh Rai Jairam Das Vs. State, and Chatturam v. Commissioner of income tax, Bihar AIR 1947 F.C. 32 to build up his argument that the sales-tax authorities derive their jurisdiction to proceed against the Assessee in the matter of assessment not on the basis of Section 12 but on the basis of other sections of the Act. The provisions regarding notice or opportunity to the Assessee are provisions made to facilitate the machinery for the realisation of the taxes and do not go to the very root of the jurisdiction of the authorities. Their Lordships of the Patna High Court (Ramaswami and Sarjoo Prosad JJ.) have drawn a distinction between the two aspects of such cases that even though in cases where there has been no issue of notice or no valid service of notice, the assessment cannot be challenged as without jurisdiction, but it can be set aside as being invalid and illegal if really there has been prejudice to the Assessee. The Patna case is to a great extent similar to our present case and involved a question of notice u/s 13(2)(b) of the Bihar Sales Tax Act which exactly corresponds to Section 12(2)(b) of the Orissa Act. Their Lordships set aside the assessment on the finding that the assessment was illegal and invalid as the Assessee was not given an opportunity to submit his accounts before the authorities, The Federal Court decision lays down almost the same principle as mentioned above drawing a distinction between these two features, Their Lordships of the Federal Court being in the midst of a case under Sections 3 and 4 of the income tax Act observed that non-issue or non-service of notice does not go to the root of the jurisdiction of the case, but nevertheless they have definitely observed to the effect. "It may be urged that the issue and service of a notice u/s 22(1) and (2) may affect the liability under the penal clauses which provide for failure to act as required by the notice," It is clear therefore to us that the present assessment must be found as illegal on account of the non-observance of the mandatory provisions of Section 12(5) as the Assessee has suffered serious prejudice on account of non-service of notice, We would therefore answer the questions in the following manner-

The answer to question No. 1 is in the negative, that is, the assessments are not legal and valid in the absence of an opportunity having been given under Sub-section (5) of Section 12 of the Act.

The answer to question No. 2 is in the negative, that is to say, that the application itself cannot be used as legal evidence against him in proof of the liability for the assessment of the three quarters in question.

The answer to question No. 3 is in the negative as there has been no agreement to waive the procedure of the Act.

The reference is disposed of accordingly, The Petitioner is entitled to costs of these proceedings. Hearing-fee is assessed at rupees one hundred (Rs. 100/-).

Misra, J.

I agree.