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Judgment
Rajagopala Ayyangar, J.—The question of law which has been referred for consideration of the Full Bench is :
Whether R. 14 of the Madras General Sales-Tax Rules is valid and if so, whether the powers of revision there under can be exercised in cases to which R. 17 relating to escaped assessment is applicable?
In view of the fact that the appeals themselves will be posted for final disposal after the receipt of the opinion of the Full Bench on the question of law formulated by the referring Judges we do not propose to deal in any detail with the facts of either of these cases but merely answer the legal question propounded in the order of reference.
The following facts however have to be set out to understand the complaint of the assessees. Both the suits out of which these appeals arise were filed by the assessees for the refund of sales-tax paid by them as a result of re-assessment in the exercise of revisional powers and in each of them the assessees have succeeded. O. S. A. No. 62 of 1951 relates to as assessment for the year 1944-1945. The Deputy Commercial-Tax Officer, Harbor Division, who was the assessing authority, by his order dated 27th March, 1946, determined the total turnover of the respondents at Rs. 2,53,72,488-14-11 and tax on this basis was paid by them. Subsequently on 28th March, 1947, the Commercial tax Officer. North Madras, issued a notice to them to show cause why the assessment should not be revised under R. 14 (2) of the Madras General Sales-Tax-Rules and by his proceedings dated 31st March, 1947 he revised it by the inclusion in the turnover of a further sum of Rs. 30,03,650-12-6 and levied tax accordingly. The amount thus demanded was paid and the suit C.S. No. 446 of 1947 was filed by the assessees for the refund of the tax on the ground that the revision and reassessment were invalid.
In the assessment proceedings which are the subject matter of C. C. C. A. No. 137 of 1951, the Deputy Commercial Tax Officer, Harbor Division, by his order dated 26th March, 1946, determined the turnover of the assessee at Rs. 2,02,26,736-0-0, the assessment in this case also related to 1944-1945. The assessee preferred an appeal to the Commercial Tax Officer and the appeal was dismissed on 25th March, 1947 by this appellate authority. On 5th March 1948 the Commercial Tax Officer issued notice to the assessee to show cause why this assessment should not be revised by including in the turnover a sum of Rs. 7,45,593-11-0. The assessee appeared and denied the jurisdiction of the reversing authority. The Commercial Tax Officer, however, by his proceedings dated 1st December 1948 increased the turn-over by the addition of the sum mentioned earlier and the assessee was required to pay the tax due according to the revised assessment, which he did and filed the suit for the refund of the sum involved in the revised assessment.
To appreciate the points raised, it will be necessary to set out the relevant provisions of the Madras General Sales-Tax Act and the rules framed there under which deal with the assessment of the tax and the provisions relating to appeal and revision at the time when the assessment orders were made and when the orders under revision under which every dealer has to pay in each year a tax on his total turnover to be calculated at the rate of three pies per every rupee on such turnover subject to exceptions not relevant for our purposes. Sub-S, (4) of this Section provides for the turnover being determined in accordance with such rules as may be prescribed and the Sub-section following provides for the tax under the main provision being assessed, levied and collected in such manner and in such installments if any as may be prescribed. S. 9which relates to assessment enacts:
9 (1): Every dealer whose turnover is ten thousand rupees or more in a year shall submit such return or returns of his turnover, in such manner, and within such periods as may be prescribed.
(2) (a): If the assessing authority is satisfied that any return submitted under Sub-S. (1) is correct and complete, he shall assess the dealer on the basis thereof,
(b) If no return is submitted by the dealer under Sub-S. (1) before the date prescribed or specified in that behalf or if the return submitted by him appears to the assessing authority to be incorrect or incomplete the assessing authority shall assess the dealer to the best of his judgment.
Provided that before taking action under this clause, the dealer shall be given a reasonable opportunity of proving the correctness and completeness of any return submitted by him.
Appeals from these orders are provided by S. 11which runs:
S. 11 (1) : Any assessee objecting to an assessment made on him under S. 9Sub-S. (2) may, within thirty days from the date on which he was served with notice of the assessment, appeal to such authority as may be prescribed;............
Provided that no appeal shall be entertained under this Sub-section unless it is accompanied by satisfactory proof of the payment of the tax admitted by the appellant to be due or of such installments thereof as might have become payable, as the case may be.
(2) The appeal shall be in the prescribed form and shall be verified in the prescribed manner.
(3) The appellate authority, may, after giving the appellant an opportunity of being heard, pass such orders on the appeal as such authority may think fit.
(4) Every order passed in appeal under this section shall, subject to the powers of revision conferred by S. 12 to 12 (c)be final.
Before an amendment effected by Madras Act XXV of 1947 which came into force on 1st January 1948, S. 12referred to in S. 11was in these terms:
S. 12: The Board of Revenue may in its discretion at any time either suo motu or on application, call for and examine the record of any order passed by or any proceedings recorded by, any officer or person under this Act for the purpose of satisfying itself as to the legality or propriety of such order, or as to the regularity of such proceedings, and may pass such order in reference thereto as it thinks fit.
The amended section which has been in force since then runs:
12 (1): The Board of Revenue may in its discretion call for and examine the record of any order passed or proceeding recorded by any authority, officer or person under the provisions of this Act, including Sub-S, (2), for the purpose of satisfying itself as to the legality or propriety of such order, or as to the regularity of such proceeding and may pass such order in reference thereto as it thinks fit.
(2) Powers of the nature referred to in Sub-S. (1) may also be exercised by such authority or officer and in such class of cases as may be prescribed, including cases where an inferior authority or officer has exercised its or his powers under this Subsection.
(3) The powers conferred by Sub-Ss. (1) and (2) may be exercised by the Board of Revenue or by the authority or officer concerned, as the case may be, suo motu at any time, or on application preferred within six months of the passing or recording of the order of proceeding in question.
S. 19(1)empowers the Provincial Government to make rules to carry out the purposes of the Act. By Sub-S. (2) "without prejudice to the generality of the foregoing power" it is enacted that such rules may provide for among others:
(a) all matters expressly required or allowed by this Act to be prescribed;
(f) the assessment to tax under this Act of any turnover which has escaped assessment, and the period within which such assessment may be made, not exceeding three years;
(g) the rectification of mistakes apparent from the record of any assessment, appeal or revision and the period within which such rectification may be made;......
(j) the duties and powers of officers appointed for the purpose of enforcing the provisions of this Act;
(i) any other matter for which there is no provision or no sufficient provision in this Act and for which provision is, in the opinion of the Provincial Government, necessary for giving effect to the purposes of this Act.
The Act itself does not prescribe the assessing authority nor the other authorities to whom appeals lie under S. 11and in fact the only specific authority named in the Act is the Board of Revenue in S. 12. The hierarchy of officials who are to assess and exercise appellate jurisdiction over orders of the assessing authorities are left to be prescribed by the rules at S. 2 (a) of the Act defines an assessing authority as meaning any person authorised by the Provincial Government to make any assessment under the Act; and S. 11leaves it to the Provincial Government to name and constitute the appellate authorities to hear appeals (or assessment orders. In exercise of these powers confided to them, the Provincial Government framed the Madras General Sales Tax Rules after satisfying the formalities prescribed for their promulgation. The gradation of officers is set out in R. 3, viz., Assistant Commercial Tax Officer, Deputy Commercial Tax Officer, and Commercial Tax Officer. The Assistant and Deputy Commercial Tax Officers are the assessing authorities under the rules. Under R. 13 of the Madras General Sales Tax Rules the Commercial Tax Officer is prescribed as the appellate authority to whom appeals may be preferred from original orders of an assessing authority. Sub-R. 6 provides that the appellate authority shall, after giving the appellant a reasonable opportunity of being heard, pass such orders on the appeal as such authority thinks fit. As the Rules numbered 14 and 17 are the main provisions whose interpretation arises on this reference they have to be set out in full. R. 14 as it stood before 7th February 1948 ran in these terms :
Rule 14 (1): Every order passed on appeal under R. 13 shall, subject to the powers of revision conferred by S. 12and by Sub-R. (2) be final.
(2) The Commercial Tax Officer may, in his discretion, at any time, either suo motu or on application, call for and examine the record of any order passed or any proceedings recorded under the Act by an Assistant or Deputy Commercial Tax Officer working under him, for the purpose of satisfying himself as to the legality or propriety of such order or as to the regularity of such proceedings and may pass such order in reference as he thinks fit.
This rule was amended as and from 7th February 1948 by Government Notification so as to read :
The following authorities may exercise the powers of the nature referred to in S. 12 (1):
(i) The Deputy Commissioner of Commercial Taxes; and,
(ii) the Commercial Tax Officer.
Provided that the Deputy Commissioner of Commercial Taxes shall not revise an appellate order of a Commercial Tax Officer acting under S. 11in respect of cases involving a turnover exceeding Rs. 20,000.
14-A : Where the tax as determined by the initial assessing authority appears to the appellate or revising authority to be less than the correct amount of the tax payable by the dealer, the appellate or revising authority shall before passing orders, determine the correct amount of tax payable by the dealer after issuing a notice to the dealer and after making such enquiry as such appellate or revising authority considers necessary.
Rule 17 as it stood before 7th February 1948 was in these terms :
17 (1): If for any reason the whole or any part of the turnover of business of a dealer or licensee has escaped assessment to the tax in any year or if the license fee has escaped levy in any year, the assessing authority or licensing authority, as the case may be, may, at any time within the year or the year next succeeding that to which the tax or license fee relates, assess the tax payable on the turnover which has escaped assessment or levy of the license fee, after issuing a notice the dealer or licensee and after making such enquiry as he considers necessary,
(2) If for any reason any tax or license fee has been assessed at too low a rate in any year the assessing authority or the licensing authority, as the case may be, may, at any time within the year or the year next succeeding that to which the tax or license fee relates revise the assessment or the license fee after issuing a notice to the dealer or licensee and after making such enquiry as he considers necessary.
This rule also underwent a change as and from 7th February 1948 from whence it ran;
17(1); If for any reason the whole or any part of the turnover of business of a dealer or licensee has escaped assessment to the tax in any year or if the license fee has escaped levy in any year, the assessing authority or licensing authority, as the case may be, may, at any time within the year or the two years next succeeding that to which the tax or license fee relates, assess the tax payable on the turnover which has escaped assessment or levy the license fee, after issuing a notice to the dealer or licensee and after making such enquiry as he considers necessary.
(2) If for any reason any tax or license fee has been assessed at too low a rate in any year, the assessing authority or the licensing authority, as the case may be, may, at any time within the year or the two years next succeeding that to which the tax or license fee relates, revise the assessment or the license fee after issuing a notice to the dealer or licensee and after making such enquiry as he considers necessary.
(3) Notwithstanding anything contained in Sub-Rr. (1) and (2)-
(a) the whole or any part of the turnover of a dealer or licensee which has escaped assessment to tax in the year 1945-1946 shall not be assessed to tax after the 31st March 1947;
(b) any license fee which has escaped levy in the year 1945-1946 shall not be levied after the 31st March 1947; and
(c) any tax or license fee which has been assessed or levied at too low in the year 1945-1946 shall not be enhanced after the 31st March 1947.
The contentions raised by the learned Counsel for the assessees-respondents in the two appeals are two. (1) On a proper construction of the provisions of the Act which we have set out above the Board of Revenue was intended to be the sole and exclusive revising authority and R. 14 (2) which authorises the Commercial Tax Officer to exercise powers of revision is beyond the rule making power vested in the Provincial Government. (2) S. 19 (f) specifically provides for rules being made for the assessment of the escaped turnover of an assessee with a time limit of three years within which such reassessment proceedings could be started and as R. 17 framed for this purpose vests the jurisdiction to assess the escaped turnover in the assessing authority namely the Deputy Commercial Tax Officer and has also prescribed a time limit of originally one and subsequently two years from the assessment order, within which that power is to be exercised, it would be contrary to all sound rules of construction to read rule 14 (2) as conferring upon the Commercial Tax Officer an unfettered jurisdiction to reopen assessments and effect a re-assessment even after the lapse of the periods prescribed by R. 17 (1). We shall deal with these two points in that order.
The arguments advanced in support of the challenge of the validity of R. 14 (2) fall under two heads, (1) that the rule was contrary to an express provision in the Act and (2) that the rule was not authorised by the rule making power conferred by S. 19. The first head of argument was formulated thus. S. 11 (4) has enacted that every order passed in appeal under this section shall, subject to the powers of revision conferred by S. 12be final. This sub-section imports finality to an order of the Commercial Tax Officer subject only to one specified exception, viz., revision by the Board of Revenue. It was not therefore competent to the rule making authority to enact a provision whereby this finality was impaired by the action of some other revisional authority. Stated in this broad form the argument is unexceptionable. But this has no application to the facts of the cases before us. In O. S. A. No. 62 of 1951, the order that was revised by the Commercial Tax Officer was an order of the Deputy Commercial Tax Officer from which no appeal had been brought and to which therefore the finality posited by S. 11 (4) was not attracted. This argument therefore cannot avail the assessee in O. S. A. No. 62 of 1951.
No doubt the assessee in C.C.C.A. No. 137 of 1951 had preferred an appeal from the assessment order passed by the Deputy Commercial Tax Officer to the Commercial Tax Officer and his appeal had been dismissed so that it was after an appellate order that the Commercial Tax Officer revised the assessment. But as and from 1st January 1948 S. 12had been amended so as to confer not merely upon the Board of Revenue as under the enactment as it originally stood, but also on the Commercial Tax Officer, the same powers of revision as had been conferred on the Board of Revenue, so that in this case also, though for a different reason the objection has no force. We have therefore no hesitation in rejecting it.
The second head of argument on this aspect of the case turns upon the scope of the rule making power under S. 19. Reliance was placed in this connection principally on the decision of the Full Bench of this Court in A.S. Nagappa Chettiar and Another Vs. Annapoorani Achi alias Karuppayi Achi and Another, where this Court held that R. 8 of the Rules framed under the Madras Agriculturists Relief Act providing for appeals from orders of trial Courts was ultra vires the rule making power under S. 28of the Madras Agriculturists Relief Act IV of 1938. That case arose in the following circumstances. As application filed under S. 19of the Madras Agriculturists Relief Act was dismissed by a Subordinate judge and an appeal was preferred to this Court there from. On the date of the Order there was no specific rule authorising appeals from such orders. Subsequently a notification was issued under S. 28of the Agriculturists Relief Act promulgating a new R.8 which enabled appeals to be filed from orders under S. 19
amending or refusing to amend a decree or entering or to enter satisfaction in respect of a decree as if the order related to the execution, discharge or satisfaction of the decree within the meaning of S. 47 Civil Procedure Code.
A preliminary objection was raised to the appeal filed to this Court and one of the points urged was that R. 8 was ultra vires, and this question was referred to a Full Bench. The learned Judges held this rule ultra vires for the reason that a right of appeal could exist only by statute and could not be implied and that S. 28of the Agriculturists. Relief Act which conferred authority on the Provincial Government to make rules could not reasonably be read as authorising R. 8. S. 28was in these terms :
(1) The Provincial Government may make rules for carrying into effect the purposes of this Act.
(2) In particular and without prejudice to the generality of the foregoing power, the Provincial Government may make rules-
(a) in regard to any matter which is required to be prescribed by this Act;
(b) prescribing the form of and the fees to be paid in respect of applications under this Act; and
(c) for removing any difficulty in giving effect to the provisions of this Act......... The learned Judges said :
Only Sub-S. 1 and Cl. (c) of Sub-S. 2 are relied upon in support of the contention that R. 8 is intra vires the Provincial Government. Sub S. 1 merely says that the Provincial Government may make rules for carrying into effect the purposes of this Act. In making a rule providing for appeals the Provincial government is not making a rule for carrying into effect the purposes of the Act. It is adding something to the Act. The object of the Act is to grant relief to agriculturists by providing machinery for the scaling down of their debts. The Court of first instance decides whether a case falls within or without the Act. If a case falls within the Act the Court must scale down the debt in accordance with the directions embodied in the Act. An order of the Court must be taken to be a correct order unless it is shown to he wrong by an appellate Tribunal which has power to entertain an appeal. Cl. (e) of Sub-S. 2 does not carry the matter any further. By providing for an appeal the Provincial Government is not removing any difficulty in giving effect to the provisions of the Act...........To read either into Sub-S. 1 or into Cl. (c) of Sub-S. 2, a power for the Provincial Government to constitute an appellate Tribunal would be to read something which is not there, and incidentally be ignoring a well settled principle.
The decision referred to only lays down a familiar principle. But we are unable to see its application to the present case where the language of the rule making power is couched in quite different terms. In particular we might refer to S. 19 (2) (j) which enables rules to be made prescribing the duties and powers of officers appointed for the purpose of enforcing the provisions of the Act particularly in the context of the Act leaving it to the rules to constitute the hierarchy of officials to exercise powers under the Act and secondly Sub-Cl. (1) where power is conferred upon the Provincial Government to frame rules in respect of
any other matter for which there is no provision or no sufficient provision in this Act and for which provision is, in the opinion of the Provisional Government, necessary for giving effect to the purposes of this Act.
These words are of the widest amplitude and, in the absence of any prohibitions or restrictions inferable from the Act itself, are apt to confer upon the Government power to constitute revisional authorities and invest them with powers in that behalf. This contention also fails and has to be rejected. We therefore hold that it was open to the Provincial Government to have framed R. 14 (2) conferring upon the Commercial Tax Officers the revisional powers that were vested in them by that provision.
The other question that has to be considered is thus formulated in the order of reference:
whether the powers of revision there under [under R. 14 (2)] can be exercised in cases to which R. 17 relating to escaped assessment is applicable?
In the form in which it has been stated above, it is capable of only one answer namely that the two rules are mutually exclusive and that in cases which fall within R. 17 (1) and where the jurisdiction to reopen the assessment is vested in the assessing authority, the Commercial Tax Officer would not have power to pass such an order under R. 14 (2). And this was in fact conceded by the learned Advocate General who appeared for the State. The point however debated before us--and we consider rightly-- was the relative scope of Rr. 14 (2) and 17 (1). The argument addressed to us by the learned Advocate General was that the two Rr. 14 (2) and 17 (1) have to be read together to define the precise content of each and so read R. 17 (1) would be applicable only to cases where the turnover of a dealer has been omitted to be taken into account by an assessing authority either because there was a deliberate concealment of such transactions by the assessee or because of any inadvertent omission on his part or on the part of the assessing officer. Only such cases could with propriety be termed cases where the turnover has escaped assessment. On the other hand, in cases where the entire turnover of an assessee is before the assessing authority and is considered by it such authority by error of fact or law treats the turnover or any part thereof as not assessable or grants a deduction or exemption to which the assessee is not entitled under the Act, the case is not one of escaped turnover but of an improper or illegal assessment order which is revisable under R. 14 (2).
The contention however raised on behalf of the assessee respondents was that R. 17 should be understood as applicable not merely to cases of escaped turnover as set out above but also to every case where by reason of some error or omission on the part of the assessing authority the assessee has been directed to pay a lesser amount of tax than was properly payable by him. In this connection the analogy of S. 34of the income tax Act and certain decisions interpreting the scope of that section were strenuously pressed upon us. Reliance was particularly placed on the decisions of this Court reported in The Commissioner of Income tax, Madras v. Rajah of Parlakimedi 49 Mad. 22 : 22 L.W. 822, The Commissioner of Income tax, Madras v. Messrs. Sheikh Abdul Kadir Marakayar and Co., 54 M.L.J. 298 : 27 L.W. 294 and of the Privy Council in Commissioner of Income tax, Bombay v. Khemchand Ram-das ILR 1938 Bom. 487. We do not propose to discuss the facts of these cases or refer to the observations in them as regards the proper construction of S. 34of the Income tax Act because in our opinion there is no real analogy between R. 17 (1) of the Madras General Sales Tax Rules and the provisions contained in S. 34of the Income tax Act. The scheme of the two enactments is wholly different. The language employed in S. 34of the income tax Act which has undergone serious changes from time to time is not identical with that in R. 17 of the Madras General Sales-Tax Rules and the mere fact that both these provisions are designed to achieve a somewhat similar purpose is too slender a foundation for the application of the cases construing one provision for determining the scope of the other. We therefore propose to confine our attention to the language used in the two Rr. 14 (2) and 17 (1) and gather the intention of the rule making authority as expressed by words employed.
No doubt in a general sense both R. 14 (2) as well as R. 17 (1) serve a common purpose, viz., to gather revenue which has improperly escaped but while R. 14 (2) is directed to the correction of improper or illegal assessment orders which have levied less or more tax than justified, R. 17 (1) lays emphasis on escaped turnover. The distinction between the two provisions might be expressed by saying that R. 14 (2) deals with escaped assessments and 17 (1) with escaped turnovers, notwithstanding that the latter also would mean that a lesser amount of tax has been paid. So understood the two provisions would be completely reconcilable and the two jurisdictions--to revise assessments and to reopen them, would each be assigned to the proper authority.
The language of R. 17(1) is consistent with this construction. The "escape" that serves as the foundation of the jurisdiction to reopen an assessment is that of "turnover" and not, be it noted, an assessment. "Turnover'''' escapes when it is not noticed by the officer either because it is not before him by reason of an inadvertence, omission or deliberate concealment on the part of the assessee, or because of want of care on the part of the officer the turnover though in the books has not been taken notice of. This would be the natural and normal meaning of the expression "turnover which has escaped" in R. 17(1).
A close examination of R. 14 (2) also supports this view of the scope of the two rules which are intended to be mutually exclusive. This rule empowers the Commercial Tax Officer "to call for and examine the record of any order passed or any proceedings recorded by the Deputy Commercial Tax Officer." Now what exactly is the meaning to be attached to the expression "the record of any order passed." The records which the revising authority calls for are the records of the assessment. They would include the assessment order as well as the other files of the assessing authority which would furnish the basis upon which the assessment Order is passed. If in the assessment order the turnover which a dealer has returned--or which has been gathered from his books is treated as not taxable or subject to any exemption and the revising authority is of the opinion that the order in this behalf is erroneous, the Commercial Tax Officer ''''would have satisfied himself that such an order was not legal or proper." Up to this there could not be any room for controversy as regards the competency of the revising authority to revise an assessment order which in its opinion is "not legal or proper." If the argument advanced on behalf of the assessee invoking the analogy of S. 34of the Income tax Act is applied, even an error of this sort would give rise to proceedings for assessing the escaped turnover and he covered by R. 17(1). We have already indicated that we are unable to accept this as the proper interpretation of the R. 17(1). In fact if this argument was accepted learned Counsel for the assessees was unable to suggest any conceivable case to which R. 14 (2) could apply apart from cases in which its interference is sought in favor of an assessee.
It remains to consider the intermediate case between a truly escaped turnover as we have indicated above and a case where the turnover has not escaped--only it has escaped assessment by reason of some error on the part of the assessing officer, We have in mind cases where the entire turnover is before the assessing officer but he fails to levy tax upon the whole or any part of it either because in his view it could not be included in the taxable turnover of the assessee or because of deductions allowed by him but fails to make a specific reference to these matters in the assessment order, in other words, where only the final result is reflected in the order without the details as how the computation was made being specifically noted in it. In this class of cases if by the record were meant only the assessment order, there may not be any reference to the particular transaction or turnover though as a fact this has been considered by the assessing authority though omitted to be referred to in the assessment order. We are of the opinion that the expression "record" would include not merely the assessment order but the entire assessment file and in the intermediate cases also if from a perusal of the record or the assessment files the revising authority can find that the turnover was before the assessing officer it is competent for it to pronounce upon the legality or propriety of the assessment order under R. 14 (2). We are of the opinion that the construction which we have placed upon the relative content of Rr. 14 (2) and 17(1) gives proper effect to both the provisions and assigns to each the role which it was designed to accomplish.
In the light of the above discussion, our answers to the reference are as follows: (1) R. 14 (2) is intra vires the rule making power of the Provincial Government under S. 19of the Act. (2) The revisional powers under R. 14 (2) cannot be exercised in cases to which R. 17 applies. (3) R. 17 applies only to cases of escaped turnover as described earlier.
(After the expression of the Opinion of the Full Bench, this appeal coming on for hearing before the Bench, (Rajagopalan and Rajagopala Ayyangar JJ.) the Court delivered the following)
These two appeals are against the decrees in two suits on the Original Side of this Court--C.S. No. 446 of 1947 and C.S. No. 370 of 1950, Louis Dreyfus and Co. Ltd.,--a dealer on a large scale in groundnuts--by the plaintiff in both these suits which were against the State of Madras, the relief sought being the refund of sales-tax stated to have been collected improperly and illegally from them.
The earlier suit, C.S. No. 446 of 1947, relates to the assessment year 1944-45 and claims the recovery of a sum of Rs. 26,933--0--5 as the amount illegally exacted from the plaintiff''s. This suit has been decreed in plaintiffs'' favor, and O. S. A. No. 62 of 1951 is the appeal by the State against the decree against them. The claim in the other suit was for obtaining a refund of Rs. 87,419-14-4, stated to have been unlawfully collected from the plaintiff''s as sales-tax for the assessment year 1945-46. This suit having been dismissed, the aggrieved plaintiff''s have preferred O. S. A. No. 54 of 1953.
The nature of the transactions'' on the basis of which the liability to tax under the Madras General Sales Tax Act is rested by the State, is the same in regard to the two years which are the subject-matter of these two appeals, but different decisions have been rendered in the two suits, because of factors to which we shall later advert.
In suit 446 of 1947 relating to the year 1944-45, from which O. S. A. No. 62 of 1951 has been filed, the Deputy Commercial Tax Officer, Harbor Division--the assessing authority--determined the total turnover of the Louis Dreyfus and Co. Ltd., whom we shall hereafter call the assessee, at Rs. 2,53,72,488-14-11 by an order dated 27th March 1946, and levied the tax payable on that figure, which the assessee duly paid; and the correctness of this levy is not in dispute- But just about a year afterwards, on 28th March 1947, the Commercial Tax Officer, North Madras, issued a notice to the assessee to show cause why the above assessment should not be revised under R. 14 (2) of the Madras General Sales Tax Rules, and after considering the objections to his jurisdiction and the merits of the contentions raised, this officer by his proceedings dated 31st March 1947 revised the figure of the total turnover by the addition of a further sum of Rs. 30,03,650-12-5 and demanded the extra tax which this revised turnover involved. The assessee paid the sum under protest and filed the suit for the refund of this extra tax. Two points were raised by the plaintiff. The first was that the transaction giving rise to the additional turnover did not attract tax liability under the Madras General Sales Tax Act, 1938; the sales involved were outside the State of Madras and therefore outside the purview of the relevant taxing statute, the contention in this regard being that the essentials of the contract of sale including the passing of the property all happened beyond the limits of the State. The second attack on the legality of the extra levy was based on the circumstance, that the addition was made by the Commercial Tax Officer by revising a final order of assessment passed by the Deputy Commercial Tax Officer. It was contended by the assessee that on a proper construction of the Madras General Sales Tax Act, 1939, R. 14 (2), which enabled a Commercial Tax Officer to revise an order of an assessing officer, was beyond the powers of the rule making authority. It was also said that, even if the said rule was intra vires, this rule had been misapplied to a case, which, according to the assessee, fell to be dealt with as a case of an escaped assessment under R. 17. In the written statement that the State filed all these contentions were denied, as also the jurisdiction of the Court to grant relief to the assessee. The trial was before Krishnaswami Nayudu J. The learned judge held in favor of the assessee on all the points raised by it, that the tax was not livable as the sales were outside the State and also that the power of revision was not available to enable the further tax to be levied. It is really unnecessary to set out or canvass the grounds on which the latter point was answered in the assessee''s favor for reasons which would be apparent in a minute. He accordingly decreed the suit by the assessee, against which the State filed Original Side Appeal No. 62 of 1951, as we have already mentioned. While this appeal was pending, the question of the validity of R. 14 (2), as well as the circumstances in which it could, if valid, be applied, came up for consideration before Govinda Menon and Krishnaswami Nayudu JJ. in S. A. No. 612 of 1949, in which judgment was rendered on 28th March 1952. This judgment which was delivered by Krishnaswami Nayudu J. for the Bench substantially affirmed what had been laid down in C.S. No. 446 of 1947 as regards these rules. A similar decision had also been reached by a judge of the City Civil Court from which the State had filed C. C. C. A. No. 137 of 1951. The State, which challenged the correctness of the construction of the Rules adopted in these several decisions, requested that the question involved might be heard by a Full Bench, and as the point was of general importance the request was granted. The Full Bench has now answered the reference against the assessee. It is unnecessary to set this out in any detail, as the further hearing of this appeal has proceeded on the basis that as the result of the Full Bench ruling the jurisdiction of the Commercial Tax Officer to revise the assessment in the circumstances of this case stands affirmed, leaving the question as to the liability to tax arising out of the sales-transactions involved in the suit as the only one left (or determination. As the transactions of sale stated to give rise to the tax are of the same types in both the years involved in the two suits, we shall deal with them in common, after setting out the matters connected with O. S. A. No. 54 of 1953.
C.S. No. 370 of 1950, from which the appeal just now mentioned arises, was heard and decided by Subba Rao J. in January 1953. After the decree in C.S. No. 446 of 1947 in October 1950 and before C.S. No. 370 of 1950 came on for trial, a Bench of this Court had in Poppatlal Shah v. State of Madras (1952) 2 M.L.J. 593 : 65 L.W. 1024, to construe the provisions of the taxing enactment in order to consider the circumstances in which the liability to tax would fasten on a transaction of sale. A firm trading under the style of the Indo-Malayan Trading Co., which was the assessee concerned in that case was convicted for failure to pay the sales tax imposed on it. The firm questioned the legality of the tax imposed on the ground, that the sales, which were included in the turnover on which the assessment was levied, did not take place within this State so as to involve any tax liability under the Madras General Sales-Tax Act. The firm which had an office in Madras received orders for the supply of groundnut oil etc., (in which the tax is collected for the seller) from merchants in Calcutta, and these when accepted, the relative goods were purchased in the local markets and dispatched to Calcutta by rail or steamer, the railway receipts or bills of lading being taken in the name of the sellers. These documents were then forwarded to their bankers in Calcutta, who in their return handed them over to the buyers after the bills were retired. The contention of the assessee was that as the property in the goods did not pass to their sellers within the State of Madras but only the delivery of the goods or at least of the documents of title relating to them--the buyers at Calcutta, they were not sales on which tax was due or eligible under the Madras General Sales-tax Act. That on the arrangement and contract between the assessee and his buyers the property in the goods did not pass to the buyers until the goods were paid for and cleared in Calcutta was not disputed by the State, but it was contended on its behalf that if there was a substantial nexus between this State and any of the components of the contract of sale, it was a sale within this jurisdiction giving rise to a tax liability, and the circumstance that the title to the goods passed to the buyer beyond the limits of this State was not a final or determining factor. This Court accepted this contention of Government and as
the assessee had an office at Madras, its accounts were maintained here; the goods which were the subject matter of sale were in Madras and delivered to common carriers in Madras and the sale price was entered in the accounts of the assessee maintained at Madras
the transaction was held to have a sufficient connection with Madras so as to enable the seller to be taxed.
It was by applying the principles of this decision which was binding on him that Subba Rao J. held against the plaintiff in C.S. No. 370 of 1950. The learned Judge rested his decision almost wholly on the circumstances that the goods which were the subject matter of the transactions in the case before him were within the State at the time of the contract, and that they were dispatched from here in implementation of the contract. The place of passing of property as the sole test for determining the locus for fixing liability to sales-tax, which is the ratio of the decision of Krishnaswami Nayudu J. in C.S. No. 446 of 1947, could not obviously have been accepted or applied by Subba Rao J. in view of the decision of the Bench in Poppatlal Shah''s Case, (1952) 2 M.L.J. 593 = 65 L.W. 1024..
The decision in Poppatlal Shah''s Case (1952) 2 M.L.J. 593 : 65 L.W. 1024, was taken in appeal to the Supreme Court, where it was reversed; [Poppatlal Shah v. State of Madras (1953) 4 S.T.C. 188 : 66 L.W. 573(S.C.)], the decision of the Supreme Court being some time after the judgment of Subba Rao J. The Supreme Court accepted the contention raised on behalf of the assessee-appellant, that the test for determining whether a sale took place in the State or not--was whether under the contract between the buyer and seller the property in the goods did or did not pass within the State. If that test were applied there was no dispute there that property in the goods did not pass in Madras.
In view of this decision of the Supreme Court as regards the circumstances in which the tax liability accrues, and the decision of the Full Bench regarding the revisional powers of the Commercial Tax Officer under R. 14 (2) of the Madras General Sales-Tax Rules, the only point for consideration in both the appeals is the correctness of the conclusion reached by Krishnaswami Nayudu J. that on the terms of the relevant contract under which the sales were effected the property in the goods did not pass while they were within the limits of the Madras State. We have to add that under the rules framed under the taxing enactment in regard to groundnut, this tax is levied on the purchaser. The question therefore is whether the title to the goods purchase by the assessees passed to them in this State.
The assessees are a limited liability company incorporated in England and carry on business inter alia in ground nuts at, among other places, Madras, and with their head office in Bombay. During the war, the assessees contracted to supply ground nut to the British Ministry of Food, the export from India being from the port of Marmagoa. To implement this contract, the assessed entered into various types of arrangements to procure the goods, and among them only two are of relevance for the decision of these appeals, the Bombay and the Arthia sales.
The first one has been compendiously termed the "Bombay sales." Under this the assessees'' head office at Bombay entered into contracts of purchase with merchants in Bombay through brokers of that city. The contracts were in the form set out in Ex. P-1 in C.S. No. 370 of 1950, which is identical with Ex. P-19 in C.S. No. 446 of 1947, these being the counter parts signed by the seller. This document which was signed by the seller and addressed to the assessee--the buyer, after reciting the sale of the quantity specified and the price stipulates for the latter "being free railway station Bombay or to be delivered at buyer''s godown" which is also at Bombay. The payment was to be according to the rules of the general terms and conditions, that 90% of the invoice price was to be Paid against railway receipts and the balance after the acceptance of the goods and after a final weighment at Marmagoa (Marmagoa was expressly named as the place where the goods were to be delivered). The buyer had an option of rejecting the goods after their delivery at Marmagoa, if it should turn out that they were not equal to the quality stipulated. It was a further term of this contract that the sellers should intimate the buyer the name of their constituents, the quantities of goods which they were in a position to consign as well as the stations at which the goods would be loaded. Those were the terms of the contract in writing. The practice in regard to the carrying out of this contract was spoken to by the manager of the assessee at Bombay. He said that after these contracts were signed by the buyer and a seller at Bombay through the medium of the brokers, the sellers would intimate to the buyer the name of their constituent, the quantity available and the stations where the goods could be put on rail. This information the buyers passed on to the office of the British Ministry of Food at Bombay, and they in their turn advised the railways concerned for arranging the requisite wagons. Thereupon " the constituents " loaded the goods on the wagons, got the railway receipt in the name of Louis Dreylus Company Ltd. as consignor and consignee and dispatched the railway receipts to the Bombay sellers. These latter then tendered the railway receipts to the assessee at Bombay against payment of 90% of the purchase price. The assessees would then clear the goods at Marmagoa and have the goods at Marmagoa and have the goods weighed and surveyed for quality and it was after their final weighment and acceptance of the goods after survey that the balance of the price etc., would be paid--also in Bombay. Such of the goods as did not conform to the quality stipulated under the contract would be rejected by the buyers the intimation in this regard being at Bombay.
It will be seen from the above that the offer and acceptance which results in the contract of sale and the final acceptance of the goods in performance thereof as well as the payment of the price all took place outside this State. The only matters which occurred in this jurisdiction were (1) the presence of the goods at the time of the formation of the contract and their dispatch from here to implement it, (2) the consignment of the goods by rail by railway receipts in which the buyer is shown as both consignor or, consignee. It was the first factor and that alone that was held to impose tax liability on the assessee by Subba Rao J. based on the decision of this Court in Poppatlal Shah''s case (1952) 2 M.L.J. 593 : 65 L. W. 1024. But in view of the reversal of this view by the Supreme Court, the presence of the goods here at the time of the sale should be held to be irrelevant; and this was conceded.
The learned Advocate General who argued these appeals on behalf of the State relied on the second of the above matters to support the levy of the tax. The contract here was one for the sale of unascertained goods, and hence there could be no passing of property until the goods were ascertained. The argument advanced was that the goods became ascertained when the dealers or ''''constituents" who had sold the goods 10 the sellers from whom the assessee purchased, lost control over the goods by loading them in wagons, taking the railway receipts in the name of the seller''s nominees, viz., the assessees as the consignors. It was urged that if the property in the goods passed from these "constituents" by their delivery to a carrier, the person to whom the property would pass would be their Bombay buyers, but as these buyers had in their turn sold the goods to the assessees and had nominated the latter to accept the delivery by taking the receipt in their name as consignor, the title to the goods would pass by the very act of delivery to the carrier to the assessee itself. It will be seen that this contention rests primarily on the circumstance of the assessees figuring as consignor and consignee in the railway receipts obtained by "the constituents". Delivery to a carrier would no doubt be an appropriation in cases where the buyer authorises the dispatch of goods through that agency, but the appropriation involved in such act need not necessarily be unconditional, which it has to be for the passing of property--where delivery to the carrier is the only fact relied on for constituting the appropriation and so the transfer of property.
In the present case there are several circumstances which militate against the delivery to the carrier and the goods being consigned in the name of the assessee being treated as sufficient to pass property. The first is that this was done because of the requirements of the war-time regulations under which railway priority could be obtained only if the goods were consigned in the name of a party who had contracted to supply goods to Government. Further the Assistant Manager of Louis Dreyfus who was examined as P.W. 1 in C.S. No. 446 of 1947 deposed thus :
Q. Why are the goods consigned in Louis Dreyfus''s name?
A. To meet the requirements of Government. They have imposed a ban.
The ban referred to was a ban on exports from this State, which was relaxed in the case of those who had to fulfill contracts for supply to the British Government. This position which was not disputed by the Government at the stage of the trial was accepted by the learned Judges in both the judgments under appeal, and indeed is not contested by the learned Advocate General before us. But his argument was that this circumstance did not establish that nothing except the requirements of Government led to the goods being consigned in the name of the assessees. We are however unable to agree with the implication of this suggestion, that the procedure might have been thought of as a means of effecting a complete delivery to the buyer even at that stage. Such an idea is inconsistent with the form of the transaction under which any portion of the purchase price became payable only on tender of the railway receipt in Bombay.
If then these circumstances were eliminated, we have the fact that 90 per cent, of the invoice price was paid only on tender of the documents at Bombay. The delivery to the carrier could not therefore be deemed to be an unconditional appropriation but governed by S. 25 of the Sale of Goods Act. Besides there on the further facts, that the goods were checked by weight, and analysed for quality at Marmagoa, and that the final payment was made after adjusting the freight to the account of the sellers which is indication that the intention of the parties in having the goods consigned in the name of the buyer as consignor and consignee was merely to enable the export of the goods to be effected so as to comply with the restrictions in that regard and not to pass title in the goods to the buyer.
We have had occasion to deal with a similar question in Gandhi Sons Ltd. Vs. State of Madras, and therefore, we do not find it necessary to embark again on any detailed discussion of the legal principles involved. Following the reasoning of that decision we hold that the learned Judges were right in their view, that the property in the goods in what are termed the Bombay sales did not pass to the buyer within this State.
The result is that on the ruling of Poppatlal Shah''s case the assessees are not liable to sales-tax in respect of these purchases.
we shall next consider the purchases through the Arthias which are referred to as the Port-Pass contracts in C.S. No. 446 of 1947. The etymological meaning of the expression Arthia appears to be a commission agent. There were two such Arthias employed by the assessees for procuring their requirement of groundnuts, but the nature of the transaction and the terms of the contract were the same. Ex. P. 14 (a) in C.S. No. 446 of 1947 which is the contract entered into with one Gulfaroz represents one such. The terms of the commission were determined by this arrangement, and the goods contained under it were consigned to the buyers under what are termed "Port Pass terms", and these terms are to be found in the type exemplified by Ex. P. 14 (c). The conditions of the Port Pass are substantially identical with those to be found in the Bombay sales--Marmagoa named as the place of delivery where the final weighment and analysis of the goods would take place, with a right in the buyer to reject in the event of the goods not conforming to the contract specifications; 90 per cent, of the price being paid at Bombay on delivery of the railway receipts by the Arthias--the receipts themselves being taken in the name of the buyer as consignor and consignee, and the balance of the price being paid alter the report regarding weighment and analysis were received. It will thus be seen that the only point of difference between the Bombay sales and the Arthia sales is in the existence of the Arthia commission agency terms embodied in the type represented by Ex. P. 14 (a) and the sole question for our consideration is whether Ex. P. 14 (a) taken in conjunction with Ex. P. 14 (c) is really different from the Bombay sale.
The document Ex. P. 14 (a) is most clumsily worded each clause appearing to contradict the legal relationship indicated by the previous one. The first clause :
That the said "artyas" shall serve the said "traders" in the Raichur/Gurberga, Wadi/Warrangal and Hyderabad/Kurnool lines for the purchase of groundnuts and other commodities for their houses at Bombay and Madras.
by its use of the expression "serve for the purchase of groundnuts for their (traders) house" seems to say that the Arthias are agents for effecting purchases.
The succeeding clause which runs "That the traders shall not be bound to buy exclusively from these Artyas but shall be at liberty to buy from any other party in the jurisdiction herein above mentioned" speaking of "buying from the Arthias" and of "buying from any other party" by implication appears to suggest that the relationship between the Arthia and trader is that of seller and buyer.
Clause 3 reverts to the idea expressed in Cl. 1 and provides :
That the said Artyas shall on receipt of orders from the said traders make purchases for the ''Trades'' houses concerned of such goods within such quantities and within such limite of prices as the Artyas may from time to time be advised and on such terms as the usual port pass contract of the said traders for the various articles they deal in may contain from time to time.
The practice appears to have been for the assessee to indicate quantities required as well as the prices it was willing to pay, and on receipt of this advice the Arthias, would, either from goods already contracted for by them or from those which they were able to secure subsequently implement their contract with the traders. The assessees called in this contract "traders" had no concern with the prices at which the Arthias were able to effect their purchases, and clause 13 expressly forbade the Arthias to pledge the credit of the Traders, Cl. 13 runs :
That the Artyas shall not pledge the credit of the traders in connection with any purchase advised by the Artyas who alone will be responsible to the third parties on account of such transactions. The traders will recognise the Artyas only for such transactions and will in no case be responsible or answerable to third parties in respect of purchases made or advised by the Artyas.
The corollary to this is Cl. 12 which runs :
That the said Artyas shall be wholly and solely responsible for the due fulfillment of all contracts of purchases advised by them.
The "purchases made by the Arthias" were to be advised to the "traders" and this was under Cl. 4 "to be understood to be on Port Pass terms" an aspect emphasised and underlined by Cls. 6 and 7, so that the conditions of the other Post Pass contract were integrated with and made part of the Arthia agreement. We shall be referring to the "Port Pass terms" after setting out the other terms of Ex. P. 14 (a). These include provision for the payment of 90 per cent against clean and unqualified railway receipts and 10 per cent after final check and analysis; a commission of 3/4 per cent on the net amount paid against contracts of purchase; and for arbitration in the event of disputes.
The Port Pass contract which is referred to in the Arthia agreement starts by designating the Arthias as the seller and the trader as the buyer, and after specifying the quantity sold and describing the quality and price of the goods sold provides the buyer with an option to reject the goods in the event of non conformity to the contract quality. Marmagoa harbor is named as the place of delivery and the terms of payment are identical with those in the Bombay sales. The procedure followed in the case of the Arthia sales was identical with that in the other sale, viz., an intimation to the buyer of the names of the constituents, the railway station where the goods would be loaded into wagons, the quantity etc. Of course, here also the "constituents" after loading the goods, obtained the railway receipts in the name of the assessee as consignor or consignee; but for reasons already mentioned, we do not consider this as very material for determining the point when property in the goods passed to the buyer.
The argument by the learned Advocate General was that the Arthias were commission agents, and when they entered into a contract for purchase from the growers or dealers, it was as if the assessees had them selves entered into these contracts, with the result that when these constituents delivered these goods at the railway stations for being loaded in wagons they parted with their title which thereafter vested in the assessees. But this would be the case only if the Arthias were strictly intermediaries who brought about the relationship of seller and buyer between the constituent and the assessees. The terms of Ex. P. 14 (a), however, do not enable this to be established. The arrangement riddled as it is with ambiguity as regards the legal relationship brought about between Arthias and Traders had to be read along with the Port Pass terms which it incorporates. There is no ambiguity or doubt as regards the latter, and Ex. P. 14 (c) clearly envisages the Arthia as a seller in relation to the trader. Further, having regard to Cls. 12 and 13 of Ex. P. 14 (a), there could be no contractual relationship between "constituent" and the assessee. In the face of these, we are clearly of the opinion that for the present purpose there is no essential difference between the direct purchases from the Bombay merchants and these purchases through the Arthias, and that in the latter case also the property in the goods did not pass to the assessees in the State of Madras. The assessees are therefore entitled to succeed in both the suits, with the result that O. S. A. No. 62 of 1951 fails and has to be dismissed, while O. S. A. No. 54 of 1953 succeeds and has to be allowed. The assessees are entitled to their costs in both the appeals, as well as before the Trial judge.