Madras High Court
Tvl.Ragam Polymers vs The Commercial Tax Officer on 22 February, 2007
Author: K.Raviraja Pandian
Bench: K.Raviraja Pandian
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22/02/2007 CORAM THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN Writ Petition No.36581 of 2005 (O.P. No.1260 of 2003) Tvl.Ragam Polymers, No.4, Theetharappran Street, Chennai 5. ..Petitioner Vs The Commercial Tax Officer, Ice House Assessment Circle, Greenways Road, Chennai 28. ..Respondent Writ Petition under Article 226 of the Constitution of India for the issue of writ of certiorarified mandamus as stated within. For Petitioner : Mr.P.Radhakrishnan For Respondents : Mr.Haja Nazirudeen, Special Government Pleader,(Taxes) ORDER
The petitioner filed O.P. No.1260 of 2003 before the Tribunal praying to quash the order of assessment passed by the respondent in TNGST No.126868/93-94 dated 30.09.2003 consequent to the remand order of the Appellate Assistant Commissioner (CT)-IV, Chennai passed in petitioner's Appeal in AP. No.312 of 1999 dated 17.07.2001 as violative of the principles of natural justice and against the provisions of the TNGST Act since the same has been passed without issuing a notice and without following the directions of the Appellate Authority issued in the petitioner's aforesaid Appeal which is binding on the respondent herein.
2. The facts, in short, are :
For the assessment year 1993-94 the petitioner was originally assessed, on the basis of the returns filed and books of accounts produced, in the year 1996. Later on, on the basis of the inspection report of the Enforcement wing officials (D3 proposals) the respondent revised the order of assessment for the assessment years 1993-94 and 1994-95 on 17.11.1998. Against the said orders of revised assessment, the petitioner preferred appeals before the Appellate Assistant Commissioner (CT IV) in Appeals Nos.312 and 311/1999. The appellate authority, after verification of the books of accounts and other relevant and necessary documents in support of the bill discounting, facilities pleaded by the petitioner, passed a detailed common order on 17.07.2001 partly remanding and partly dismissing the appeal. In respect of that portion of remand order, the Appellate Assistant Commissioner directed the assessing officer to reconsider the issue by giving certain directions therein. The assessing officer passed the revised order without following the directions given in the appellate order. Hence, the present OP, which is now converted as writ petition on being transferred to the file of this Court on abolition of the Tamil Nadu Taxation Special Tribunal.
3. Heard the learned counsel on either side and perused the materials available on record.
4. The above order of revised assessment is also an order appealable under the Act. Generally this Court seldom or very very slow in entertaining, particularly in fiscal law, a writ petition, against an order, which could be agitated before the inbuilt appellate forum. But as this sort of orders ignoring the directions given by the appellate authority have been repeatedly passed by the assessing officers, this Court entertained the writ petition with the view to pass detailed order in order to guide the assessing officers in the situation of the present nature.
5. The order of the appellate authority dated 17.07.2001 on which reliance was placed read as follows:
"When the appellants themselves had admitted that the sale bills were issued for the purpose of discounting by the bank only and produced documentary evidence for the discounting of the bills, it cannot be presumed that the actual sales transactions had taken place in the above bills, unless the department provides positive proof for the actual sales. The goods were allegedly supplied to two customers in Chennai only. One of them Tvl. EID Parry ltd., have already issued a certificate denying the transactions involved in the sales bills issued for the purpose of bill discounting. The appellants expressed their inability to get a similar certificate from Tvl. Shaw Wallace Co. Ltd., due to administrative problems. If the department is particular to prove the transactions, the accounts of Tvl. EID Parry Ltd., and Tvl. Shaw Wallace Co. Ltd., could have been verified. But merely on the basis of invoices only, the actual sales have been presumed, without establishing the fact transfer of property in goods had taken place for valuable consideration."
The appellate authority, while observing as above, concluded as follows :
"I set aside the assessment made on the rest of the turnover of Rs.24,31,419/- and remand back to the assessing authority with the following directions:
a) The details that would be furnished by the appellants in respect of entries available in slip Nos.11, 13, 21, 22, 29, 30 and 31 should be verified with reference to the accounts of the appellants and if the transactions involved the slips had already accounted for by the appellants, the assessment made by the turnover of Rs.2,29,599/- along with estimated suppression should be deleted.
b) Tvl. EID Parry Ltd., and Tvl. Shaw Wallace Co., are companies of some repute. Therefore, the alleged sales transactions involved in bill discounting and reflected in the invoices recovered at the time of inspection should be cross verified with the above buyers.
c)If the transactions reflect in the accounts of the above buyers, such transactions should be assessed, if not already assessed.
d)If the transactions do not reflect in the books of accounts of the buyers, the assessment on such transactions should be deleted.
6. By the impugned order, which is made pursuant to the order of remand by the appellate authority, the assessing officer reconfirmed his earlier order, the material portion is extracted below:
"As directed by the Appellate Assistant Commissioner, all the connected records which were produced before the Appellate Assistant Commissioner were called for from the dealers. Regarding the details for suppression arrived at as per the slips recovered at the time of inspection of their business premises against form D7 acknowledgement, they have stated that the particulars could not be given due to efflux of time. But they have furnished the details for Rs.5,98,207.00 which they have claimed that only Bills were made for Bank purpose but not included in the turnover in respect of Tvl.Shawwallace and Co.Ltd., and EID.Parry (India) Limited, in respect of slip Nos.15, 39/40, 50, 52, 60, 62, 64 for Rs.3,22,175.00 and slip Nos.16, 53, 54, 55, 57 and 59 for Rs.2,76,032. (EID Parry (India) Limited respectively.
When the issue is pending finalisation, their explanation that due to efflux of times, the particulars could not be furnished in respect of the suppression arrived as per the slips recovered from their business premises is not acceptable. In the deposition dated 16.6.94 before the Deputy Commercial Tax Officer, Enforcement Wing, Group.VII (Central), Thiru. S.Rakkappan, partner of the business has stated that their sales are mainly to Tvl.E.I.D.Parry (India) Limited and M/s.Shaw Wallace and Co.Limited. The dealers have deposed before the Enforcement Wing Officers that the relevant transactions were not accounted for in the accounts. Then, there is no reason as to why should they approbate them before the Enforcement Wing and reprobate before the Assessing Officer. Therefore their contention that in respect of the disputed turnover, only bills were issued for discounting purpose (but no goods were supplied) is only an after thought and is not acceptable, more particularly for the following reason:
"that the concept of bills discounting as per banking practice involves drawer, drawee of the bills, paying banker and the collecting banker. Bills discounting is a transaction bonafidely effected as per the banking practice and that the bills discounting facility shall be possible only as true/correct drawal of bills by the drawer against the drawee and payable by the drawee bank upon presentation. It can never be raised only for accommodation purpose as observed by the learned Appellate Assistant Commissioner. Had the bills been drawn, their genuineness is beyond doubt and such bills ought to have been paid by the paying banker on account of the drawee."
In view of the facts discussed above and after taking into consideration the directions of the Appellate Asst.Commissioner, the explanations offered by the dealers are not acceptable and they are overruled and their total and taxable turnover are determined as under: for the year 1993-94. .."
7. Under the Scheme of the T.N.G.S.T.Act, there is hierarchy of authorities before which the person who feels aggrieved can get adequate redress against the wrongful act complained of. Section 31 provides for appeal to Appellate Assistant Commissioner against an order passed under certain provisions of the Act, which included in it assessment order also. Section 32 provides for special powers i.e., suo motu power to the Deputy Commissioner for examining the correctness of the order passed under certain provisions of the Act. Section 33 provides for revision to the Joint Commissioner against orders, which are not appealable. Section 34 invested on the Joint Commissioner special suo motu power for examination of the correctness of the order made under certain provisions. Section 35 provides revision to Joint Commissioner and Section 36 provides for second appeal to the Appellate Tribunal against the order of the Appellate Assistant Commissioner/Deputy Commissioner. Thus, the Act provides for complete machinery to challenge the order of assessment before the authorities prescribed under the Act.
8. Under the hierarchial statutory system, as contemplated under the Act, the order of the Assessing Officer is appealable under Section 31 of the Act. Thus, the Appellate Assistant Commissioner is placed vertically over the Assessing Officer, who while exercising his power of assessment entrusted by the Act was regarded as Tribunal of exclusive jurisdiction by the Supreme Court, vide 53 STC 315 (Titaghur Paper Mills Co. Ltd. v. State of Orissa) at page No.320.
9. The fact of conferment of statutory appellate power on the Appellate Assistant Commissioner over the order passed by the Assessing Officer, certain consequences naturally flow and follow. Appeal implies in its natural and ordinary meaning the removal of cause from any inferior Court or Tribunal to a superior one for the purpose of testing the soundness or correctness of the decision and proceedings of the inferior Court or Tribunal. The superior forum shall have jurisdiction to reverse, confirm, annual or modify the order of the forum appealed against and in the event of remand the lower forum shall have to re-hear the matter and comply with such directions as may accompany the order of removal. The appellate jurisdiction inherently carries with it a power to issue corrective directions binding on the forum below and failure on the part of the later to carry out such directions or show disrespect to or to question the propriety of such direction would be destructive of the hierarchial system in the administration of justice. Seekers of justice would lose faith in both and would only knock the doors of this Court under Article 226 of the Constitution of India for correcting orders.
10. In the case of Tirupati Balaji Developers (P) Ltd. v. State of Bihar reported in 2004 AIR SCW 2522 = (2004) 5 SCC 1, the Supreme Court held thus:
"... 11. The very conferral of appellate jurisdiction carries with it certain consequences. Conferral of a principal substantive jurisdiction carries with it, as a necessary concomitant of that power, the power to exercise such other incidental and ancillary powers without which the conferral of the principal power shall be rendered redundant. As held by Their Lordships of the Privy Council in Nagendra Nath Dey v. Suresh Chandra Dey and others, AIR 1932 Privy Concil 165 (Sir Dinshah Mulla speaking for the Bench of five), an appeal is an application by a party to an appellate court asking it to set aside or revise a decision of a subordinate court. The appeal does not cease to be an appeal though irregular or incompetent. Placing on record his opinion, Subramania Ayyar, J. as a member of the Full Bench (of five Judges) in Chappan v. Moidin Kutti, (1899) 22 ILR Mad 68 (at p.80) stated inter alia that appeal is "the removal of a cause or a suit from an inferior to a superior judge or court for re-examination or review". According to Wharton's Law Lexicon such removal of a cause or suit is for the purpose of testing the soundness of the decision of the inferior court. In consonance with this particular meaning of appeal, "appellate jurisdiction" means "the power of a superior court to review the decision of an inferior court." "Here the two things which are required to constitute appellate jurisdiction, are the existence of the relation of superior and inferior court and the power on the part of the former to review decisions of the latter. This has been well put by Story: "The essential criterion of "appellate jurisdiction" is, that it revises and corrects the proceedings in a cause already instituted and does not create that cause. In reference to judicial tribunals an appellate jurisdiction, therefore, necessarily implies that the subject-matter has been already instituted and acted upon, by some other court, whose judgment or proceedings are to be revised," (Section 1761, Commentaries on the Constitution of the United States ). ..."
11. In the case of UNION OF INDIA VS. KAMAKSHI FINANCE CORPORATION reported in 1991 (55) E.L.T. 433 (S.C.), two Assistant Collectors of Excise Department received severe strictures at the hands of the High Court for not following the orders of the appellate authorities. When the matter was taken to the Supreme Court, the Apex Court held that it is utmost importance that in disposing of quasi judicial issues before them revenue officers are bound by the decisions of Appellate authority. The order of the Appellate Collector is binding on Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors, who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessment and chaos in administration of tax laws. I am of the view it is apropos to extract the relevant portion of the rule, which reads as under:
"... The learned Additional Solicitor General submits that the learned Judges have erred in passing severe strictures (1990(47) ELT 231 (Bom.) against the two Assistant Collectors who had dealt with the matter. He submitted that these officers had given reasons for classifying the goods under Heading 39.19 and not 85.46 and could do no more. He submitted that they acted bona fide in the interests of Revenue in not accepting a claim which, they felt, was not tenable. Sri Reddy is perhaps right in saying that the officers were not actuated by any mala fides in passing the impugned orders. They perhaps genuinely felt that the claim of the assessee was not tenable and that, if it was accepted, the Revenue would suffer. But what Sri Reddy overlooks is that we are not concerned here with the correctness or otherwise of their conclusion or of any factual mala fides but with the fact that the officers, in reaching their conclusion, by-passed two appellate orders in regard to the same issue which were placed before them, one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. The impression or anxiety of the Assistant Collector that, if he accepted the assessee's contention, the department would lose revenue and would also have no remedy to have the matter rectified is also incorrect. Section 35E confers adequate powers on the department in this regard. In the light of these amended provisions, there can be no justification for any Assistant Collector or Collector refusing to follow the order of the Appellate Collector or the Appellate Tribunal, as the case may be, even where he may have some reservations, on its correctness. He has to follow the order of the higher appellate authority. This may instantly cause some prejudice to the Revenue but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under S.35E(1) or (2) to keep the interests of the department alive. If the officers view is the correct one, it will no doubt be finally upheld and the Revenue will get the duty, though after some delay which such procedure would entail. It is clear that the observations of the High Court, seemingly vehement, and apparently unpalatable to the Revenue, are only intended to curb a tendency in revenue matters which, if allowed to become widespread, could result in considerable harassment to the assessee- public without any benefit to the Revenue. We would like to say that the department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them...."
12. In Sri Rajendra Mills Limited Vs. Joint Commercial Tax Officer, Salem, reported in (1971) 28 STC 483, a Division Bench of this Court considered the issue on the fact that certain turnover on cotton lending was regarded by the assessing officer as sale, but according to the assessee, it was only lending. For the assessment year, the Tribunal assessee's own case found similar transaction as lending. But the Revenue took the matter on appeal before High Court in Tax Case. The assessing officer on the ground of pendency of Tax case expressed his view that the transaction was sale. In those circumstances, a writ petition came before the Division Bench, which ruled as follows:
"... We consider that in the hierarchy of authorities set up under the Act, the Tribunal is superior to the Appellate Assistant Commissioner, who is bound by the orders of the Tribunal. The orders of the Tribunal will be as effective as the orders of this court so far as their binding character on the Appellate Assistant Commissioner is concerned. Merely because a tax case has been filed by the department, it does not mean it acts as a kind of stay of operation of the order of the Tribunal. So long as that order of the Tribunal is not set aside, the Appellate Assistant Commissioner is bound to give effect to it, and if he fails to do it and by-passes it on the ground that the department has filed an appeal, it will be really a contempt of the Tribunal's order...."
13. In SHANKAR RAMACHANDRA ABHYANKAR VS. KRISHNAJI DATTATRAYA BAPAT reported in AIR 1970 SC 1, the Supreme Court pointed out that the appeal is the right of entering the superior Court and invoking its aid and interposition to redress the error of the Court below. There are two important postulates of constituting the appellate jurisdiction: (i) the existence of the relation of superior and inferior Court; and (ii) the power in the former to review decisions of the later. Such jurisdiction is capable of being exercised in a variety of forms. An appeal is a process of civil law origin and removes a cause, entirely subjecting the facts as well as the law, to a review and a retrial.
14. Section 31(3) of the Act empowers the Appeallate Assistant Commissioner in case of an assessment order, confirm, reduce, enhance or annul the assessment or the penalty or both or set aside the assessment and direct the assessing officer to make a fresh assessment after such further enquiry as may be directed or to pass such other orders as the appellate authority may think fit or in the case of any other order, confirm, cancel, or vary such order. The proviso to the said Section provided that at the hearing of the appeal against the order of the assessing authority, the assessing authority shall have the right to be heard either in person or through by a representation.
15. In the present case, it is evident that the assessing officer as per the proviso was represented by Departmental representative before the Appellate Assistant Commissioner while disposing of the appeal. It is also a fact which is on record that the State representative verified the accounts produced by the petitioner and accepted the same as correct before the Appellate Assistant Commissioner. When the assessing officer was represented through the Departmental representative, it tantamounts to hearing the assessing officer himself.
16. In the facts of the present case, if we see the impugned order with reference to the directions given by the Appellate Assistant Commissioner in his remand order, the direction given by the appellate authority has been given a total go by. Though the impugned order starts with the phraseology as directed by the appellate Assistant Commissioner, all the connected records which were produced before the Appellate Assistant Commissioner were called for from the dealers, none of the directions given by the Appellate Assistant Commissioner has been followed by the assessing officer. The statement the petitioner made before the Enforcement Officers on 16.6.1994 which formed the basis for passing the assessment order, which has been set aside by the appellate authority, has once again been reiterated and the action of the assessee before the Appellate Authority vis a vis the statement given before the Enforcement Officer has been characterised as approbation and reprobation on the part of the assessee. The contention in respect of the disputed turnover of discounting of the bills has been rejected by quoting certain observation as to the concept of Banking procedure of bill discounting. The direction given by the Appellate Authority to cross verify the accounts of EID Parry and Shawwallace, who are the reputed dealers and the consequential further direction given in paragraph Nos. (c) and (d) has not at all been complied with.
17. The action of the assessing officer in passing the impugned assessment order, which has been passed without any regard to the direction given by the Appellate Assistant Commissioner, having regard to the statutory hierarchial scheme and the binding nature of the order passed by the appellate authority as envisaged in the various decisions above referred to, cannot be legally sustainable and it has to be set aside with a specific direction to the assessing officer to follow the directions given by the Appellate Assistant Commissioner in his proceedings dated 17.7.2001. In the given set of facts, I can also take support of the ratio laid down in the case of UNION OF INDIA VS. KAMAKSHI FINANCE CORPORATION reported in 1991 (55) E.L.T. 433 (S.C.) to state that it is not as if the revenue is left without any remedy. Even assuming for a moment the order of the Appellate Authority is not in accordance with law, the revenue can very well take the order on appeal and there are provisions as stated in the earlier paragraphs in which the superior officers are vested with the suo motu powers to call for, rectify the defects, if any, in the orders passed under the provisions of the Act. Of course, as stated by the Supreme Court, in the above said process, there will be some delay in conclusion of the proceedings. for that matter, the assessing officer cannot ignore the directions given by the appellate authority.
18. For all the above said reasons, the writ petition is allowed. However, there is no order as to costs.
raa/usk Note:
The Special Government Pleader (Taxes) is directed to send the copy of this order to the Commissioner of Commercial Taxes, Chennai with a request to intimate the order to the assessing officers so as to enable them to take this order as a guideline in passing assessment orders.
To The Commercial Tax Officer, Ice House Assessment Circle, Greenways Road, Chennai 28.
[PRV/9768]