Bombay High Court
Indoswe Engineers (P.) Ltd. vs State Of Maharastra on 3 February, 1995
Author: D.K. Trivedi
Bench: D.K. Trivedi
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under section 61(1) of the Bombay Sales Tax Act, 1959, read with section 9(2) of the Central Sales Tax Act, 1956, made at the instance of the assessee, the Maharashtra Sales Tax Tribunal has referred the following questions of law to this Court for opinion :
"(i) Whether, on the facts and under the circumstances of the case and upon true and correct interpretation of section 55(6)(b) and section 36(2)(c) of the Bombay Sales Tax Act, 1959, the Tribunal was justified in holding that the first appellate authority can invoke rule of evidence contained in Explanation (2) to section 36(2)(c) and confirm the penalty levied by the Sales Tax Officer under section 36(2)(c) of the Act ?
(ii) Whether, on the facts and circumstances of the case, the Tribunal erred in holding that the presumption of deemed concealment was not rebutted even after acceptance of the closed and adjusted books of accounts by the Sales Tax Officer ?
(iii) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that even when the assessment of the applicant was made on the basis of returns, which were filed late, still Explanation (2) to section 36(2)(c) is attracted and the appellate authority could invoke that Explanation for confirming the penalty levied by the Sales Tax Officer under section 36(2)(c) of the Act ?"
2. The assessee M/s. Indoswe Engineers (P) Ltd., is a manufacturer of non-ferrous extrusions and extruded products. It is registered as a dealer both under the Bombay Sales Tax Act, 1959 ("the Bombay Act") and the Central Sales Tax Act, 1956 ("the Central Act"). It was assessed for the period July 1, 1977 to June 30, 1978, under both the Bombay Act and the Central Act by the Sales Tax Officer, Pune, on December 31, 1981. The tax position as per the assessment orders passed by the Sales Tax Officer is as under :
Bombay Act Central Act
Returned Determined Returned Determined
Tax assessed 3,16,539 3,21,758 1,76,802 1,61,934
Set-off 1,11,839 44,676 ... ...
-------- -------- --------- --------
Net amount payable 2,04,700 2,77,082 1,76,802 1,61,934
Add : Additional tax
under section 15A-I 16,482 16,625 ... ...
--------- -------- -------- --------
Total tax payable 2,21,182 2,93,707 1,76,802 1,61,934
Tax paid 2,21,182 2,21,182 1,76,802 1,76,802
--------- -------- -------- --------
Balance of tax due Nil 72,525 Refundable 14,868
Add : Penalty under
section 36(2)(c) 25,000 27,000
-------- --------
97,525 12,132
3. In the course of assessment proceedings, the Sales Tax Officer noticed that (i) the assessee had filed all the returns late and taxes were paid late and (ii) the amount of tax paid with the returns was less than 80 per cent of the amount of tax assessed and, therefore, the assessee was liable to penalty under section 36(3) and under section 36(2)(c), Explanation (1) of the Act. The Sales Tax Officer, therefore, issued two separate notices, one under section 36(3) and another under section 36(2)(c), Explanation (1). The notices were replied by the assessee on December 24, 1981. In regard to penalty under section 36(3), it was stated by the assessee that the taxes could not be paid in time due to financial difficulties caused by labour trouble, strikes, credit squeeze, etc. In regard to penalty under section 36(2)(c), it was stated that the extra dues had arisen for the following reasons :
(i) The tax under the Bombay Act was wrongly paid under the Central Act;
(ii) the levy of tax on sale of assets was not free from doubt and hence tax on such sales was not paid with returns;
(iii) the levy of purchase tax under section 14 was also not free from doubt. The contravention in respect of oil and lubricants used in job-work was worked out on presumption basis. The purchase tax levied under section 14 should be excluded while considering the penalty under section 36(2)(c).
The assessee's representative was also heard by the Sales Tax Officer on December 24, 1981. At the time of hearing, it was submitted on behalf of the assessee that if the excess payment made through oversight under the Central Act was taken into consideration along with the set-off allowed, then the difference between the assessed amount of tax and the tax paid would be less than 20 per cent and no penalty would be leviable under section 36(2)(c) as per the assessment order.
4. The Sales Tax Officer accepted the cause shown by the assessee in reply to the show cause notice under section 36(3) of the Act and did not impose any penalty under section 36(3) of the Act. He, however, levied penalty under section 36(2)(c) of the Act. The amount of penalty levied under the Bombay Act was Rs. 25,000. Similarly, penalty of Rs. 27,000 was levied under the Central Act under section 36(2)(c) of the Bombay Act read with section 9(2A) of the Central Act. It is pertinent to note that though the Sales Tax Officer dropped the proceedings initiated for levy of penalty under section 36(3) of the Act for failure, without reasonable cause, to pay the tax in time, he took the said default in consideration while levying penalty under section 36(2)(c) of the Act which is evident from his following observation in the order of penalty :
"However, on taking a lenient view, penalty under section 36(2)(c) is levied at Rs. 25,000 which otherwise would have been leviable under section 36(3) had returns been filed in time, but tax was paid late."
5. Aggrieved by the orders of the Sales Tax Officer levying penalty under section 36(2)(c) of the Bombay Act, in the orders of assessment both under the Bombay Act and the Central Act, the assessee appealed to the Assistant Commissioner. At the time of hearing, it was contended before the Assistant Commissioner by the assessee that if the amount of set-off was also considered as tax paid with the returns, the total payment made by the assessee would be more than 80 per cent of the amount of tax assessed. Reliance was placed in support of this contention on the decision of this Court in Commissioner of Sales Tax v. Empico Traders [1981] 47 STC 426 where it was held that for the purpose of levying penalty under section 36(2)(c), expression "tax paid" appearing in Explanation (1) to that section could not be restricted only to the amount of tax paid by the dealer into the Government treasury but would also include the amount of set-off granted to that dealer under rule 43 of the Bombay Sales Tax Rules, 1959. It was contended that in view of the above decision and the uncontroverted factual position, Explanation (1) to section 36(2)(c) would not be attracted and hence penalty levied with the aid of said Explanation should not be sustained. The Assistant Commissioner found force in the above submission of the assessee that Explanation (1) to section 36(2)(c) was not attracted to the facts of the case and hence accepted the same. He, however, felt that the assessee having filed the returns beyond the prescribed date, the rule of evidence contained in Explanation (2) could be invoked and penalty could be sustained with reference to the same. He, therefore, issued a show cause notice to the assessee on October 5, 1982, asking him to show cause why penalty under section 36(2)(c) should not be sustained with the aid of Explanation (2) thereto. By the said notice, the assessee was asked to show cause that the failure to furnish return within the prescribed time was not without any reasonable cause and, in the event of its failure to do so, to show cause why penalty should not be imposed in respect of the said default. In reply to the said notice, the assessee informed the Assistant Commissioner that the tax paid by him being not less than 80 per cent of the tax assessed, no penalty was leviable under section 36(2)(c) of the Act. The assessee also appeared before the Assistant Commissioner in pursuance of the above notice through his Sales Tax Practitioner and objected to the proposal of the Assistant Commissioner to impose penalty under section 36(2)(c) of the Act by invoking the rule of evidence contained in Explanation (2) to the said section. It was contended that the Assistant Commissioner had no jurisdiction to do so. It was also submitted that assessment having been completed under section 33(3) of the Act on the basis of the returns furnished by the assessee, though belatedly, Explanation (2) had no application. The Assistant Commissioner did not accept any of the above contentions of the assessee and confirmed the penalty by his order dated August 31, 1983, with the aid of Explanation (2). He however, reduced the quantum of penalty from Rs. 25,000 to Rs. 20,000 and from Rs. 27,000 to Rs. 22,500 under the Bombay Act and the Central Act respectively.
6. The assessee appealed against the above orders of the Assistant Commissioner to the Maharashtra Sales Tax Tribunal ("the Tribunal"). Before the Tribunal it was contended on behalf of the assessee that while hearing the appeal, the Assistant Commissioner had no power to convert the penalty levied under section 36(2)(c), Explanation (1) to penalty under section 36(2)(c), Explanation (2). According to the assessee, the Assistant Commissioner had no jurisdiction to do so under section 55(6)(b) of the Act. The Tribunal did not accept this contention of the assessee as, according to it the two Explanations appended to section 36(2)(c) are merely rules of evidence and whenever any penalty is imposed by the authorities under section 36(2)(c), it is penalty under section 36(2)(c) and not under the Explanation (1) or Explanation (2) thereto. The Tribunal held that the Assistant Commissioner did not commit any error in invoking the rule of evidence contained in Explanation (2) which was not invoked by the Sales Tax Officer. According to the Tribunal, the only requirement for doing so is to give an opportunity to the assessee to challenge the applicability of a particular Explanation or to rebut the presumption thereunder. The Tribunal noticed that in the present case such an opportunity had been given to the assessee. The Tribunal also noticed that the returns for all the four quarters had been submitted belatedly by the assessee. The Tribunal also did not accept the contention of the assessee that the assessee having maintained books of account which had been accepted as correct and no discrepancy having found in any transaction recorded therein, the presumption of concealment stood rebutted as according to it, the presumption of deemed concealment raised under Explanation (2) could be rebutted only by showing that no turnover was liable to tax. The Tribunal, however, reduced the quantum of penalty to Rs. 18,000 and Rs. 20,000 under the Bombay Act and the Central Act respectively.
7. Aggrieved by the above order of the Tribunal, the assessee applied under section 61(1) of the Bombay Act for reference of the questions of law arising out of the said order. The Tribunal, on being satisfied that questions of law did arise out of its order, reframed the questions proposed by the assessee and referred the questions so reframed to this Court for opinion, which have already been set out in paragraph 1 above.
8. Mr. P. C. Joshi, learned counsel for the assessee, contends that Explanation (2) to section 36(2)(c) has no application in the present case, where the returns submitted by the assessee, though belatedly, have been taken on record by the Sales Tax Officer and assessment has been made on the basis thereof under section 33(3) of the Act. Mr. Joshi further contends that Explanation (1) and Explanation (2) are mutually exclusive and a case can fall under either of the two but not under both. According to him, it is clear from the language of Explanation (2) that it applies only to cases of failure to submit return resulting in a best judgment assessment under section 33(5) of the Act. It is also contended by Mr. Joshi that the appellate authority, in exercise of its power under section 55(6)(b) of the Act, cannot take resort to Explanation (2) to sustain the penalty levied by the Sales Tax Officer with the aid of the deeming provision contained in Explanation (1). He next contends that the condition precedent for invoking the rule of evidence contained in Explanation (2) is totally absent in the instant case because there is nothing to show that the failure to file the returns within the prescribed date was "without sufficient cause". According to the counsel, there is enough material on record to establish that there was "sufficient cause" for the failure to furnish return within the prescribed period. Counsel further contends that even if Explanation (2) was attracted and the Assistant Commissioner had power to invoke the rule of evidence contained therein to sustain the penalty, no penalty could have been levied under section 36(2)(c) of the Act because the presumption of concealment was fully rebutted by the assessee by producing evidence to show that he had not concealed his turnover or any part thereof. According to the counsel for the assessee, the Tribunal committed a manifest error of law in holding that the presumption of deemed concealment could be rebutted only by showing that no turnover was liable to tax.
9. Mr. Milind Sathe learned counsel for the Revenue, on the other hand, supports the order of the Tribnnal. His contention is that Explanation (2) would operate in all cases where the returns are filed in respect of any period beyond the prescribed date. It is only on the dealer showing sufficient cause that Explanation (2) would not operate. According to Mr. Sathe, on the dealer's failure to show sufficient cause, the presumption of concealment of turnover would operate which could be rebutted by the assessee only by proving that he had no turnover liable to tax. Mr. Sathe also submits that in exercise of the reference jurisdiction, this Court should not construe the first part of Explanation (2) and should confine its decision only to the question referred on the assumption that Explanation (2) would operate in all cases where the returns are filed in respect of any period beyond the prescribed date.
10. On a careful consideration of the rival submissions of the counsel for the parties, we find that the questions referred to us in this reference are very important and interesting. However, before we proceed to deal with the same, we deem it expedient to first deal with the last submission of the counsel for the Revenue which pertains to the scope and ambit of the powers of this Court while exercising reference jurisdiction under section 61(4) the Act. The issue that arises for consideration is whether the power of the High Court is limited to those aspects of the question which were argued before the Tribunal or decided by the Tribunal or all aspects may be argued and considered where the question involves more than one aspect. We find that this controversy is no more res integra. It is well-settled by a catena of decisions of the Supreme Court and various High Courts that once a broad question has been referred, the High Court is not required to limit itself only to the particular aspect on which decision was given by the Tribunal. There is no limitation that the reference should be limited only to those aspects of the question which were argued before the Tribunal or decided by the Tribunal. All aspects may be argued and considered where the question involves more than one aspect. As observed by the Supreme Court in Commissioner of Income-Tax v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589, a question of law might be a simple one, having its impact at one point or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different standpoints. It will be an over-refinement of the position to hold that each aspect of a question is a different question for the purpose of the reference. Once a question is referred, it is open to the High Court to consider all aspects thereof. Reference may also be made in this connection to a recent decision of the Supreme Court in Salem Co-operative Central Bank Ltd. v. Commissioner of Income-tax [1993] 201 ITR 697 where the Supreme Court approved the observations of the Madras High Court in Commissioner of Income-tax v. Salem Co-operative Central Bank Ltd. reported in [1981] 132 ITR 612, that if the Tribunal proceeds upon an assumption which is erroneous in law, and refers a question to the High Court, it cannot be said that the High Court is bound by the terms of the question referred and cannot correct the erroneous assumption of law underlying the question. B. P. Jeevan Reddy, J., speaking for the Supreme Court, observed (at page 701) :
"......If such power is not conceded to the High Court, the result would be that the answer given by the High Court may equally be erroneous in law. Such a situation cannot certainly be countenanced. It would not be in the interest of law or justice."
11. In view of the above well-settled legal position in regard to the scope and ambit of the powers of the High Court in reference jurisdiction, we do not find any merit in the submission of the counsel for the Revenue that this Court should not interpret the first part of Explanation (2) to section 36(2)(c) to decide whether in the present case the condition precedent for applicability of the said Explanation was fulfilled or not because it has not been specifically referred to us. In our view, that is one of the important facets of the questions referred to us which has to be decided by this Court in order to decide the real controversy in this case.
12. We now turn to the questions referred to us by the Tribunal. However, before we proceed to consider the same, it may be expedient to set out section 36(2)(c) of the Act which provides for imposition of penalty in certain cases. This sub-section, so far as relevant, at the material time, red as follows :
"36. Imposition of penalty in certain cases and bar to prosecution. -
................
(2) If, while assessing or reassessing the amount of tax due from a dealer under any provisions of this Act or while passing any order in any appeal or revision proceedings, it appears to the Commissioner that such dealer -
.................
(c) has concealed the particulars of any transaction or knowingly furnished inaccurate particulars of any transaction liable to tax, the Commissioner may, after giving the dealer an opportunity of being heard, by order in writing, impose upon the dealer by way of penalty, in addition to any tax assessed or reassessed or found due in the appeal or revision proceedings, as the case may be, a sum not exceeding one and one-half times the amount of the tax.
Explanation. - (1) Where a dealer furnishing returns has been assessed by the Commissioner under sub-section (3) or (4) of section 33, or assessed under sub-section (3) of section 41, or reassessed under clause (b) of sub-section (1) of section 35, or in whose case an order has been passed under section 55 or clause (a) of sub-section (1) of section 57, and the total amount of tax paid by the dealer for any year is found to be less than eighty per cent of the amount of tax as so assessed or reassessed or found due in appeal or revision, then, for the purpose of clause (c), he shall be deemed to have concealed the turnover, or knowingly furnished inaccurate turnover liable to tax, unless he proves to the satisfaction of the Commissioner, that the payment of a lesser amount of tax was not due to gross or wilful neglect on his part.
Explanation. - (2) Where a dealer fails without sufficient cause to furnish returns in respect of any period by the prescribed date, then for the purpose of clause (c), he shall be deemed (until the contrary is proved) to have concealed the whole turnover liable to tax as assessed or reassessed or determined in an order passed under section 55 or clause (a) of sub-section (1) of section 57."
13. It is clear from a plain reading of the above provision that the gist of offence is that (i) the assessee has concealed the particulars of any transaction or (ii) knowingly furnished inaccurate particulars of any transaction liable to tax. On commission of such an offence being established, the assessee would be liable to a penalty to the extent of one and one-half times the amount of the tax.
14. So far as the nature of penalty proceedings is concerned, it is well-settled by now by a catena of decisions of the Supreme Court and various High Courts that provision for imposition of penalty is in the nature of a penal provision. In Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211, the Supreme Court, dealing with section 25(1)(a) of the Orissa Sales Tax Act, 1947, which provides for penalty for failure to register as a dealer, held that the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. It was observed (at page 214) :
"......An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute........"
Considering the facts of the case before it in the light of the above observations, the Supreme Court held (at page 214) :
"......Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out."
This legal position was reiterated by the Supreme Court in Commissioner of Income-tax v. Anwar Ali [1970] 76 ITR 696 in the following words (at page 700) :
"......It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceeding."
It was observed (at page 700) :
"In England also it has never been doubted that such proceedings are penal in character."
The decision of House of Lords in Fattorini (Thomas) (Lancashir) Ltd. v. Inland Revenue Commissioners [1942] 1 All ER 619; 24 TC 328; [1943] 11 ITR (Supp.) 50 was referred to this connection.
It is also well-settled that provisions dealing with penalty should be construed strictly within the term and language of the particular statute and in case of doubt, in a manner favourable to the assessee. If the court finds that the language of a taxing provision is ambiguous or capable of more meaning than one, then the court has to adopt the interpretation which favours the assessee, more particularly so where the provision relates to imposition of penalty. [Commissioner of Income-Tax v. Vegetable Products Ltd. [1973] 88 ITR 92 (SC) and C. A. Abraham v. Income-tax Officer .
16. On a reading of section 36(2)(c) of the Act in the light of the above legal propositions, it is clear that the onus is on the Revenue to prove that the assessee had "concealed the particulars of any transaction" or "knowingly furnished inaccurate particulars of any transaction liable to tax". The only exceptions to this rule are cases falling under the two Explanations thereto. The first Explanation was introduced for the first time by Maharashtra Act 29 of 1965 with effect from July 1, 1965, which was later substituted by the Maharashtra Act 40 of 1969 by Explanation (1) set out above with effect from September 1, 1969. Explanation (2) was inserted for the first time by Maharashtra Act 40 of 1969 with effect from September 1, 1969. These Explanations were added to obviate the difficulties faced by the Revenue in proving the positive element required for concealment under the substantive provision of section 36(2)(c). The effect of Explanation (1) is that where the total amount of tax paid by any assessee is less than eighty per cent of the amount of tax assessed, or reassessed or found due in appeal or revision, the onus is on such assessee to prove that the payment of lesser amount of tax was not due to gross or wilful neglect on his part. In the event of his failure to do so, for the purpose of clause (c) of sub-section (2) of section 36, he would be deemed to have concealed the turnover liable to tax. Explanation (2) applies to cases where the dealer fails "without sufficient cause" to furnish returns in respect of any period by the prescribed date. In such cases, the dealer is deemed (until the contrary is proved) to have concealed the whole turnover liable to tax as assessed or reassessed. Failure to furnish return "without sufficient cause" is thus the condition precedent to the applicability of this Explanation. In order to avail of the benefit of deemed concealment under Explanation (2), the revenue authority concerned must be prima facie satisfied, on the basis of materials on record, that the failure to furnish the returns was without sufficient cause. In the absence of such a satisfaction, Explanation (2) will not be attracted and the onus will be on the Revenue to prove the concealment by adducing necessary evidence.
17. If the conditions precedent for applicability of any of the two Explanations exist, the assessee would fall within the mischief of that Explanation and the onus to prove the negative, i.e., that the payment of lesser amount of tax was not due to gross or wilful neglect on his part [in a case falling under Explanation (1)] or that he had not concealed the whole turnover liable to tax as assessed [in a case falling under Explanation (2)] would be shifted to the assessee. He would then be deemed to have concealed the turnover or knowingly furnished inaccurate particulars of the turnover liable to tax under Explanation (1) or to have concealed the whole of the turnover liable to tax as assessed or reassessed under Explanation (2). These presumptions are, however, rebuttable. The assessee may rebut the same by producing cogent and relevant material. If the assessee discharges the burden put on him by the Explanation, the onus of proof shifts to the Revenue to produce further evidence and material to prove affirmatively the ingredients of section 36(2)(c). If it fails to do so, the penalty under section 36(2)(c) will fail.
18. It it thus clear from the above discussion that the two Explanations appended to section 36(2)(c), in no way effect the ingredients of the offence under section 36(2)(c) of the Act. They merely create legal fictions if the conditions of their applicability are satisfied and enact a rule of evidence. Explanation (1) creates a legal fiction and brings an assessee straightway within the ambit of section 36(2)(c) on the existence of stipulated difference between the tax paid and the tax assessed. It is then not necessary for the Revenue to prove the positive element required for concealment. But if at any stage of the proceedings the difference falls short of the stipulated difference, the Explanation would cease to apply and the assessee would be out of the mischief of the deeming provision contained therein. The onus of proving concealment will then automatically shift to the Revenue. The onus will be shifted to the Revenue even where Explanation (1) applies, if the assessee can satisfy the authority concerned by producing necessary evidence that he was not guilty of gross or wilful neglect. In such case also, if the Revenue does not adduce any further evidence, penalty under section 36(2)(c) cannot be sustained. Similarly, in a case under Explanation (2), the assessee may challenge its applicability by producing cogent, relevant and reliable material that there was sufficient cause for not furnishing the return by the prescribed date. If the authority concerned is satisfied that there was sufficient cause for the failure to submit return, Explanation (2) would not apply and there would be no presumption of deemed concealment. Then the onus will be on the Revenue to prove the concealment by cogent material or evidence. If the assessee fails to show sufficient cause for failure to submit the return and Explanation (2) is attracted, he may still discharge the onus cast on him by establishing cogent and relevant material, that he had not concealed the turnover liable to tax. If he can do so, the onus will again shift to the Revenue to prove the concealment.
19. Thus the assessee can come out of the mischief of the Explanation either by showing that the condition precedent for its applicability did not exist or by discharging the burden cast on him to rebut the presumption of deemed concealment. In that event, the burden will shift to the Revenue to prove the positive element required for concealment under section 36(2)(c) of the Act.
20. Moreover, as stated earlier, Explanation (1) and Explanation (2), fall within the realm of rule of evidence. It is, therefore, competent to the authority which imposes the penalty to invoke the aid of any of two Explanations in reaching the final conclusion even if it had not been mentioned in the show cause notice. It would also be open to the appellate or revisional authority to invoke any of these Explanations in course of hearing of appeal or revision. [See Commissioner of Income-tax v. Drapco Electric Corporation [1980] 122 ITR 341 (Guj) and Kantilal Manilal v. Commissioner of Income-tax [1981] 130 ITR 411 (Guj)]. It would also be permissible for the appellate or revisional authority to sustain the penalty levied under the substantive provision with the aid of any of the two Explanations. It is also open to invoke the Explanation other than the one invoked by the assessing authority, if it finds that the other Explanation was wrongly invoked. However, before doing so, it must draw the attention of the assessee to the Explanation sought to be invoked to enable him to displace the presumption thereunder or to show that the said Explanation was not applicable on account of non-existence of the condition precedent for the applicability thereof. If that is not done, the order passed with the aid of the Explanation without affording an opportunity to the assessee to challenge the applicability thereof or rebutting the presumption thereunder would be bad in law and liable to be set aside and quashed as being violative of the principles of natural justice. The principles laid down by the Supreme Court in Hazari Mal Kuthiala v. Income-tax Officer [1961] 41 ITR 12 and a catena of other decisions that if a particular action is valid under one section, it cannot be rendered invalid because of reference to another section, has no application where in a penal action no notice was given under the relevant section or resort was taken to such provision without notice to the delinquent or the offending party. [See Commissioner of Sales Tax v. Anoop Wines ].
21. We now revert to the facts of the case. The uncontroverted factual position is that there was some delay in payment of tax and submission of the returns for all the four quarters falling within the year of assessment, both under the Bombay Act and the Central Act. The due date of filing the returns and the actual date of filing the same for each of the four quarters is given below :
Quarter ending Due date Date of filing
30-09-1977 31-10-1977 23-07-1978
31-12-1977 31-01-1978 20-04-1978
31-03-1978 30-04-1978 24-07-1978
30-06-1978 31-07-1978 23-08-1978
All these returns, though submitted belatedly, were taken on record by the Sales Tax Officer, who proceeded to assess the assessee-dealer under both the Acts on the basis thereof. The assessments were made under sub-section (3) of section 33 of the Act after considering the evidence produced by the assessee in support of its returns. The tax position as per the assessment orders passed by the Sales Tax Officer under both the Acts has already been set out in that form of a chart in para 2 above. The Sales Tax Officer did not find any concealment of the particulars of any transaction a inaccurate particulars thereof. He, however, noticed that the total amount of tax paid by the assessee for the year under consideration was less than eighty per cent of the amount of tax assessed by him. He, therefore, invoked Explanation (1) to section 36(2)(c) and initiated proceedings for levy of penalty under that provision by issuing a show cause notice. He also initiated proceedings for levy of penalty under sub-section (3) of section 36 of the Act for the failure of the assessee to pay the tax within the prescribed time without any reasonable cause. The assessee showed cause in both the proceedings. So far as delay in payment of tax is concerned, it was stated that the taxes could not be paid in time due to financial difficulties caused by labour trouble, strike, credit squeeze, etc. The Sales Tax Officer accepted this explanation about the reasonable cause for the delay in payment of taxes and dropped the proceedings under section 36(3) of the Act. In reply to the proposed levy of penalty under section 36(2)(c) with the aid of Explanation (1), the assessee set out the reasons for the difference between the tax paid and the tax assessed. The Sales Tax Officer did not accept this explanation and levied penalty under section 36(2)(c) of the Act with the aid of the deeming provision contained in Explanation (1) thereto. The Sales Tax Officer determined the amount of penalty with reference to the amount that would have been payable had the assessee paid the taxes in time. The assessee appealed to the Assistant Commissioner against the levy of penalty under section 36(2)(c) with the aid of Explanation (1) on the ground that the said Explanation was not attracted as the stipulated difference between the tax paid and the tax assessed did not exist if as held by this Court in Commissioner of Sales Tax v. Empico Traders [1981] 47 STC 426, the amount of set-off was treated for the purposes of Explanation (1) as part of the tax paid. The Assistant Commissioner found that the assessee was correct in saying so and on correct computation in terms of the decision of this Court in commissioner of Sales Tax v. Empico Traders [1981] 47 STC 426, the amount of tax paid did not fall short of the eighty per cent of the tax assessed. He, therefore, held that Explanation (1) was not attracted and the penalty levied with the aid thereof cannot be sustained. The Assistant Commissioner, however, felt that the returns for all the four quarters having been furnished beyond the prescribed date, Explanation (2) could be invoked and whole turnover deemed to have been conceded unless the assessee could prove the contrary. He, therefore, issued a notice to the assessee informing him that he was of the opinion that he had committed default under section 36(2)(c) read with Explanation (2) thereto and that he would be deemed, until the contrary was proved, to have conceded the whole of the turnover liable to tax as assessed by the Sales Tax Officer. Accordingly, the assessee was called upon to prove that the failure to furnish returns beyond the prescribed date was not without sufficient cause and, in the event of failure to prove accordingly, to show case why penalty should not be imposed on him in respect of the above default. The assessee challenged the jurisdiction of the Assistant Commissioner to levy penalty by taking resort to Explanation (2), as the said Explanation had not been invoked by the Sales Tax Officer who imposed the penalty with the aid of Explanation (1). The Assistant Commissioner did not accept the above objection of the assessee and confirmed the penalty with the aid of Explanation (2). He, however, reduced the quantum of penalty by Rs. 5,000 and Rs. 4,500 under the Bombay Act and the Central Act respectively. The assessee challenged the order of the Assistant Commissioner before the Tribunal. Besides challenging the power of the Assistant Commissioner to invoke Explanation (2) for the first time, it was das contended by the assessee that he had rebutted the presumption of deemed concealment by producing the closed and adjusted books of account before the Sales Tax Officer which were accepted and assessment was made on the basis thereof. It was pointed out that no discrepancy was found in the said books of account. The Tribnnal did not find any merit in the objection in regard to the power of the Assistant Commissioner as it was of the opinion that it was open to the Assistant Commissioner to invoke the rule of evidence contained in Explanation (2) to justify the levy of penalty. The Tribunal also held that Explanation (2) was attracted in the instant case as the assessee had failed to rebut the presumption of deemed concealment. The Tribunal also did not agree with the assessee that the presumption of concealment stood rebutted by production of closed and adjusted books of account which were found correct and complete. According to the Tribunal, the presumption of concealment could be rebutted only by showing that no turnover was liable to tax. Hence this reference.
22. We have already set out the questions referred by the Tribunal and the contentions of the assessee as also of the Revenue. We have also indicated the issues that arise for consideration. We shall now deal with each of them in the light of the facts of the case, the relevant provisions of the law and the legal propositions discussed above.
23. The first question that arises for consideration is whether the appellate authority under the Bombay Sales Tax Act can sustain the penalty levied by the Sales Tax Officer under section 36(2)(c) of the Act with the aid of Explanation (1) by taking resort to Explanation (2). The answer in our opinion has to be in the affirmative for the reasons more than one. First, the powers of the appellate authority under section 55 are much wider than the powers of an ordinary court of appeal. In an appeal under section 55 of the Act, the competence of the appellate authority is not restricted to examining those aspects of the matter which are complained of by the appellant but ranges over the whole order. He can revise every process which led to the passing of the order appealed against. His power is co-terminous with that of the original authority which passed the order. He can do what the latter could do. He can also do what the latter faded to do. This position is manifest from sub-section (6) of section 55 of the Act which deals with the powers of the appellate authority in appeals against different orders. Clause (b), which deals with the powers in an appeal against an order imposing a penalty, empowers the appellate authority to confirm or cancel such order or vary it so as either to enhance or reduce the penalty. The appellate authority thus has the power even to enhance the penalty. It may also take into account fresh evidence or material. It can examine the liability of the assessee to penalty from a fresh and altogether different angle. It may consider the question of onus of proof and examine the legality of the order appealed against by applying the correct rule of evidence and by putting the onus of proof in accordance with law on the Revenue or the assessee, as the case may be. He is not confined to the pleas raised. He may confirm or cancel the order appealed against on an altogether different ground which had never been raised before the original authority or considered by it. In view of such wide powers, he can definitely sustain penalty levied under section 36(2)(c) of the Act by taking resort, for the first time in the appeal, to the rule of evidence contained in any of the two Explanations thereto and the presumption of deemed concealment contained therein. He can consider the legality of the order of penalty by applying any of the two Explanations, if the conditions precedent for its applicability are present, no matter whether it had been applied by the original authority or not. In a given case, he may sustain the penalty levied by the original authority with the aid of any of the Explanations, without the aid thereof if the Explanation relied upon by the original authority is found not applicable to the facts of that case, by recording a positive finding of concealment, if the materials on record justify such a finding. The only restriction on the exercise of this power is that he should give an opportunity to the assessee of its intention to do so to enable him to put forward his case in that light and to challenge the applicability of the Explanation sought to be invoked or to rebut the presumption of deemed concealment thereunder.
24. The next question that arises for consideration is whether under the facts and circumstances of the present case, the Assistant Commissioner was justified in taking resort to Explanation (2) and to sustain the penalty with the aid thereof. On a careful consideration of the facts of the case, we are of the clear opinion that he was not justified in doing so. The reasons for our above opinion are as follows : First, Explanation (2) applies only to cases where the dealer fails to submit the returns within the prescribed time resulting in a best judgment assessment under sub-section (5) of section 33 of the Act, because only in such cases, the presumption of concealment of whole of the turnover assessed is possible. It would not apply to assesses who have submitted the returns, though belatedly, before the assessing officer proceeds to assess them to the best of his judgment under sub-section (5) of section 33 for the failure to file the returns and the assessment is made on the basis thereof under sub-section (2) or sub-section (3) or sub-section (4) of section 33. Because, in case of assessees assessed under sub-section (3) or (4) of section 33, Explanation (1) applies if the total tax paid falls short of eighty per cent of the tax assessed. It does not apply to cases where the assessee has been assessed under sub-section (5) of section 33 on best judgment assessment basis for failure to furnish the returns by the prescribed date. In the instant case, admittedly the belated returns filed by the assessee were taken on record and assessment was made by the Sales Tax Officer on the basis thereof under sub-section (3) of section 33 of the Act. In our opinion the Sales Tax Officer rightly did so. That being so, for levying penalty under section 36(2)(c), Explanation (1) alone would be applicable and not Explanation (2). Second, the two Explanations to section 36(2)(c) are mutually exclusive. Explanation (2) will not apply to a case to which Explanation (1) applies. This is manifest from the fact that in cases falling under Explanation (1), assessment being made on the basis of the returns, the assessee is also deemed to have "knowingly furnished inaccurate turnover liable to tax" whereas in cases falling under Explanation (2), the assessment having been made to the best of his judgment without any returns on record, the assessee is "deemed to have concealed the whole turnover liable to tax as assessed". Obviously, Explanation (2) will apply only to assessee assessed under sub-section (5) of section 33. Third, even if Explanation (2) applies, the condition precedent for invoking the same does not exist in the present case. There is nothing on record to show that the Assistant Commissioner was prima facie satisfied that the assessee faded "without sufficient cause" to furnish returns in respect of the relevant quarters by the prescribed date. In fact, there was material on record to the contrary. Fourth, even if Explanation (2) applies, the presumption of concealment of the whole turnover was rebutted by the assessee by showing that he had disclosed the correct turnover in the returns as well as in the books of account which was accepted by the Sales Tax Officer. Admittedly, no discrepancy was found in the said books of account. The turnover shown by the assessee was accepted as the correct turnover. Under the circumstances, in our opinion, the Assistant Commissioner was not justified in rejecting the above explanation of the assessee on the ground that the presumption of concealment could be rebutted only by showing that no turnover was liable to tax. The Tribunal was equally wrong in accepting this conclusion of the Assistant Commissioner. The above conclusion, in our view, is patently erroneous because question of levy of penalty will arise only in a case where the assessee had taxable turnover during the relevant period. No penalty can be levied under section 36(2)(c) of the Act on an assessee who has no turnover liable to tax. This is evident from the fact that the presumption under Explanation (2) is of concealment of turnover liable to tax. The onus on the assessee under Explanation (2) is to show that there was no concealment of "turnover liable to tax". Once the assessee can rebut the same and prove the contrary, Explanation (2) will not apply and the onus will be shifted to the Revenue to prove the concealment. It is well-settled that the onus of proof placed on the assessee under the Explanations is not of the nature of onus on the prosecution in a criminal trial. It can be discharged by giving plausible explanation. It is a burden more akin to that in a civil case where the determination is made on a preponderance of probabilities. Judging from the above standards, it is difficult to say that the assessee failed to discharge the onus cast on him and rebut the presumption against him. In fact, neither the Assistant Commissioner nor the Tribunal has said so. As indicated earlier, the Assistant Commissioner rejected the explanation on an erroneous assumption of law which is not tenable. Fifth, there is no material on record which can justify the levy of penalty in this case under section 36(2)(c) of the Act without the aid of the Explanations.
25. In the light of the foregoing discussion, in our view, in the present case, the Tribunal was not justified in confirming the penalty under section 36(2)(c) of the Act with the aid of Explanation (2) of the Act.
26. However, we do not propose to answer the questions referred to us in the affirmative or negative because in our opinion, such answers, if read out of context, might be misunderstood and misconstrued. We have already discussed at length all aspects of those questions from different angles and given our opinion thereon. Under the circumstances, in our view, it is expedient to reframe the question. We reframe the question as under :
"Whether under the facts and circumstances of the case, the Tribunal was justified in confirming the penalty levied on the assessee under section 36(2)(c) of the Bombay Sales Tax Act 1959."
And in the light of the foregoing discussion and for the reasons set out above, we answer the same in the negative, i.e., in favour of the assessee and against the Revenue.
27. Under the facts and circumstances of the case, we direct the parties to bear their own costs.
28. Question reframed and answered in the negative.