Karnataka High Court
Mallika Metal Foundry vs Commissioner Of Commercial Taxes In ... on 18 June, 1993
Equivalent citations: [1994]95STC27(KAR)
JUDGMENT K. Shivashankar Bhat, J.
1. This appeal is by the assessee under the provisions of the Karnataka Sales Tax Act, 1957 ("the Act", for short); the question involved pertains to the assessment years 1979-80, 1980-81, 1981-82 and 1982-83. Assessee is a dealer who manufactures batteries and battery plates (also referred as lead battery plates). In respect of the battery plates, assessee paid tax at the rate of 4 per cent (or 5 per cent depending upon the assessment years) under section 5(1) of the Act, on the ground that these battery plates were not covered by any specified entry in any of the Schedules to the Act; orders of assessment were made accordingly. Subsequently, the Deputy Commissioner of Commercial Taxes proposed to revise these assessment orders suo motu under section 21 of the Act and after hearing the assessee dropped the proceedings; Deputy Commissioner proposed to revise the assessment orders on the ground that these battery plates come within the purview of "batteries of motor vehicles and parts thereof" under entry 73-B of the Second Schedule to the Act and therefore the relevant turnover was taxable at 13 per cent.
2. The Deputy Commissioner of Commercial Taxes opined that under entry 73-B, only the batteries are included, but not accessories or the component parts and that the battery plate sold by the assessee was neither a spare part nor the part of the battery; entry 73-B does not include the words "accessories or component parts".
3. The above orders and the assessment orders were revised by the Commissioner of Commercial Taxes under section 22A of the Act. The Commissioner held that the records show that the assessee "is, inter alia, a manufacturer of storage batteries of motor vehicles. Besides these motor vehicle batteries the dealer had also manufactured and sold lead battery plates. It is not disputable from the records that the lead battery plates were those used and usable in the motor vehicle batteries which are also manufactured by the dealer". Thereafter he proceeded to hold that these lead battery is an essential part of a battery and is part of motor vehicle battery.
4. Two contentions were urged by Mr. Srinivasan, the learned counsel in support of this appeal : (i) The dropping of the proceedings by the Deputy Commissioner under section 21 of the Act is not an order capable of being revised under section 22A. Assuming there is an order capable of being revised, the proceedings under section 22A were clearly barred by limitation; at any rate, the proceedings in respect of the assessment years prior to 1982-83 were barred. (ii) Entry 73-B at the relevant period covered only "batteries of motor vehicles and parts thereof". There is no material to consider that the lead batteries sold by the assessee were lead batteries of the "batteries of motor vehicles"; all kinds of batteries are not comprised within the scope of entry 73-B; the subject of entry 73-B basically covers only motor vehicles batteries and not other batteries; in the absence of a definite finding that the assessee sold lead batteries of "motor vehicle batteries", entry 73-B cannot be attracted.
5. Assessment orders for the years 1979-80 and 1980-81 were originally made on June 1, 1982; for the year 1981-82 it was made on December 13, 1982 and for 1982-83 the order was made on October 22, 1983. On June 26, 1984, the Deputy Commissioner initiated suo motu proceedings to revise all those orders under section 21 of the Act. On August 14, 1984 he dropped the proceedings, agreeing with the assessee's contention as to the inapplicability of entry 73-B. Thereafter the Commissioner initiated proceedings under section 22A of the Act; notice was issued by him on January 25, 1988; notice proposes to revise the orders of the Deputy Commissioner and the original assessment orders. Power under section 22Ahas to be exercised within 4 years of the order sought to be revised. There is no dispute that if the records are called for within this period of 4 years proceedings would be within the period of limitation. Records disclose that the Commissioner called for the records on December 11, 1987. The order-sheet of the Commissioner discloses that he noted that the revisional orders and the assessment orders are to be revised, as they are not acceptable and hence it is a fit case for action under section 22A of the Act. These assessment orders of all the years were already submitted to the Commissioner by the assessing authority on October 13, 1987. The notice issued under section 22A by the Commissioner, to the assessee, states that the assessment orders as well as SMR orders (orders made by the Deputy Commissioner) are erroneous and prejudicial to the interest of the Revenue and it was proposed to set aside the assessment orders and the SMR orders under section 22A and to remand the cases for fresh disposal.
6. If essentially it is a case of revising the SMR orders, there can be no doubt that proceedings under section 22A were initiated within 4 years of the passing of the earlier SMR orders. However, if the limitation operates from the original orders of assessment, initiation of proceedings under section 22A so far as it pertains to the years 1979-80, 1980-81 and 1981-82 would be barred by time; the only proceeding that would be within the bar of limitation would be of the year 1982-83.
Re. First contention :
7. Mr. Srinivasan contended that when suo motu proceedings to revise the assessment order (SMR) were initiated, original assessment orders ceased to exist; when the said SMR proceedings were dropped, there were no effective orders passed. Therefore in the eye of law no order existed capable of being revised by the Commissioner under section 22A of the Act.
8. The highly technical approach to the machinery provisions of a fiscal legislation does not appeal to us. It is not possible to imagine that by the initiation of SMR proceedings, original orders of assessment get erased for all purposes. Similarly when the SMR proceedings are dropped, the very dropping of the proceedings could be by an "order" made under the Act, which in turn is capable of being revised under section 22A of the Act. Section 22A refers to "any order passed in any proceeding under the Act; the phraseology is quite comprehensive to cover any order made by an authority who is subordinate to the Commissioner. The word "any" preceding the term "order" should be given due weight and cannot be ignored. Similarly the term "order" cannot be confined to an order which reverses or modifies the order made by a lower authority; even an order affirming/confirming an order of the subordinate authority, is an "order". In this context the further question is whether the original order of assessment merges in the order dropping SMR proceedings and we are inclined to hold that the former merged in the latter.
9. In Deputy Commissioner of Commercial Taxes v. H. R. Sri Ramulu , the Supreme Court was considering the effect of an order made under section 12A of the Act, which provides for assessment or reassessment to the best of the judgment of the assessing authority, when he has reason to believe that turnover has escaped assessment. Initially there was an order of assessment; subsequently, the assessing authority acting under section 12A made an assessment by including certain amounts which had escaped assessment earlier. Sometime thereafter the Deputy Commissioner suo motu initiated proceedings to revise the said order made under section 12A; in this proceeding he disallowed which had been allowed earlier. According to the assessee the suo motu revisional proceedings were barred by time, because, the proceedings were beyond 4 years from the order of assessment made initially; in other words, the contention was that the period of limitation was to be counted from the date of the first order of assessment and not from the date of the order made under section 12A. This contention was accepted by the High Court; but the Supreme Court reversed this view. It was held by the Supreme Court that, "......... once an assessment is reopened, the initial order for assessment ceases to be operative. The effect of reopening the assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made on reassessment. The initial order for reassessment cannot be said to survive, even partially, although the justification for reassessment arises because of turnover escaping assessment in a limited field or only with respect to a part of the matter covered by the initial assessment order. The result of reopening the assessment is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping assessment. As it is, we find that in the present case the assessment orders made under section 12A were comprehensive orders and were not confined merely to matters which had escaped assessment earlier. In the circumstances, the only orders which could be the subject-matter of revision by the appellant were the orders made under section 12A of the Act and not the initial assessment orders."
10. The ratio should govern the proceedings under section 21 of the Act also. When an order of assessment is sought to be revised, the original order of assessment gets reopened, exposed for being modified, altered or set aside by the revisional authority. The revisional authority may substitute his own order replacing the earlier order of assessment which he revises.
11. Revisional power is considered as an aspect of the appellate power; though, its scope is circumscribed by the statute creating the said power of revision (vide Shankar Ramchandra Abhyankar v. Krishnaji Dattatraya Bapat and Ramesh v. Gendalal Motilal Patni .
12. If the effect of an appellate order is to absorb the original order in itself, due to the merger of the original order in the appellate order, there is no reason to hold that a similar result would not follow an order made in the exercise of the revisional power.
13. It was contended that the revisional authority dropped the proceedings and therefore, in the eye of law there was no revisional proceedings and that there is a distinction between an order revising the assessment order and an order dropping the proceedings to revise the assessment order.
14. We do not think so. In the case of a suo motu revision, if ultimately, after hearing the assessee, the authority opines that the original order of assessment was correctly made, the only order he could pass is "to drop the proceedings"; there can be no order "dismissing" the revision petition, because, there is no revision petition before him. The order dropping the proceeding is a convenient mode of expressing that the original order of assessment stands without being revised, because the said order does not suffer from any infirmity stated in section 21 of the Act. The dropping of the proceedings results in the affirmation of the order of assessment, as happens when an appeal is dismissed. However, this proposition is subject to the limitation inherent in the doctrine of merger.
15. It was pointed out in State of Madras v. Madurai Mills Co. Ltd. :
"But the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by the inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there is a fusion or merger of two orders irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction."
16. If the subject-matter of the appeal or revision is entirely different, the merger thereby is not applicable, as it happens when an order of assessment is actually a composite order, of which one aspect is not within the purview of the higher jurisdiction of revision or appeal. In the above Madurai Mills Co. case , Deputy Commercial Tax Officer made an order of assessment; assessee filed an appeal to Commercial Tax Officer challenging the inclusion of two items in the turnover. The Commercial Tax Officer excluded one of the items from the turnover; consequently Deputy Commercial Tax Officer issued a revised order of assessment. Assessee filed a revision petition to Deputy Commissioner challenging the appellate order in respect of other items; this revision petition was dismissed. The Board of Revenue thereafter issued a notice proposing to revise the order of the Deputy Commercial Tax Officer by including another item which was wrongly excluded by the Deputy Commercial Tax Officer. The assessee raised the plea of limitation on the ground that the revisional proceedings were initiated beyond the period of 4 years from the date of the order made by the assessing authority. The Supreme Court held that the subject-matter of the revision proceedings before the Board of Revenue was the revised assessment order of the Deputy Commercial Tax Officer. It was also held that the subject-matter of the third item of turnover (pertaining to the exclusion of the value of yarn purchased from outside the State) was not the subject-matter of revision before the Deputy Commissioner and therefore the order made by the Deputy Commissioner governed a different subject-matter; consequently there was no merger of the original order with the said revisional order; since the subject-matter of revision before the Deputy Commissioner pertained to a particular item (the sum collected by the assessee by way of tax) and other subjects were untouched in his proceedings, it was held that there was no merger of the original order in the revisional order.
17. In the instant case before us, the subject-matter of revisional proceedings initiated by the first revisional authority was the same as the one now involved before the second revisional authority and in this appeal. The subject-matter is the taxability of the particular goods (battery plates) under entry 73-B of the Second Schedule. The Deputy Commissioner initiated proceedings under section 21 proposing to tax the goods under the said entry 73-B and subsequently upheld the original order of assessment holding it to be taxable under section 5(1), on the ground that the goods were not covered by entry 73-B. The Commissioner proposed to revise this order on the same ground and roped in the goods into entry 73-B. Therefore, the subject-matter of the first revisional proceedings is the same (which was also the subject-matter considered by the assessing authority earlier), it has to be held that there was fusion or merger of the two orders thereby the original order of assessment losing its identity.
18. As held in Commissioner of Income-tax, Bombay v. Amritlal Bhogilal & Co. , if the appellate authority modifies or reverses the decision of the Tribunal, it is the appellate decision that is effective and can be enforced and in law the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal.
19. We have already noted that there can be no substantial distinction between an appellate or a revisional proceedings and the doctrine of merger would govern both sets of cases.
20. In Commissioner of Income-tax v. Hindustan Aeronautics ltd. , a Full Bench of this Court had to consider the scope of merger under the provisions of the Income-tax Act. Speaking for the Full Bench, Hakeem, J., observed at page 323 of ITR; 12 of ILR :
"From these decisions, it will be clear, that when an appellate authority has in fact dealt with an issue in its order, such matters are covered by the doctrine of merger. Similarly, if an appellate authority does not have the jurisdiction under the law to deal with an issue, the doctrine of merger does not operate in respect of that issue. These are now undisputed propositions. The controversy, however, is in relation to the application of the doctrine in each case depending upon the scope of the statutory provisions conferring the appellate or revisional jurisdiction. The controversy is in relation to such issues which could have been dealt with by the appellate authority within its jurisdiction but in fact have not been dealt with by the said authority. It is also in relation to such issues which were in fact raised before the appellate or revisional authority but not dealt with by the said authority."
21. Thereafter it was noticed that the "Appellate Assistant Commissioner can look into and adjudicate upon findings recorded by the Income-tax Officer not only against the assessee which may expressly be the subject-matter of the appeal but also a matter which has been considered and determined by the Income-tax Officer in the course of the assessment. In other words, the entire subject-matter of the assessment would be within the jurisdiction of the Appellate Assistant Commissioner". Thereafter the earlier view expressed in Vijayalakshmi Lorry Service case was accepted by the Full Bench wherein it was held that the entire order merges when the order was taken in appeal and was modified by the Appellate Assistant Commissioner.
22. An unreported decision of a Bench of this Court in Jayram Metal Industries v. State of Karnataka (STA Nos. 19 to 21 of 1986 dated December 21, 1990) was relied upon by Mr. Srinivasan. One of the questions was whether an order dropping the proceedings under section 12A was an order falling within the purview of section 22A and the Bench held that "even an order dropping proceedings should be considered to be revisable order of the Commercial Tax Officer ..." This observation, actually supports our view already stated earlier, that dropping of a proceeding is also an order. It is unnecessary for us to consider another observation in the said case that the appellate order involved therein was a nullity. As to the applicability of the doctrine of merger, we are bound by the decisions of the Supreme Court and the observations of the Full Bench of this Court.
23. Consequently we hold that the order sought to be revised is the revisional order by which the suo motu proceedings initiated earlier was dropped. Reference to the original order of assessment is inevitable in such a situation. The factual existence of the original assessment order has to be necessarily referred, because it has merged into the order of the revisional authority and while reading the latter order, everything which has merged into it shall have to be referred.
Re. Second contention :
24. Original order of assessment discloses that the assessee had sold "automobile batteries as first dealer"; assessee also had sold "lead battery plates". During 1979-80, according to the assessee the turnover of automobile batteries was Rs. 63,597 and of "lead batteries" Rs. 2,44,781.25. The assessee had filed objections to the notice issued by the Commissioner under section 22A. In the objections, assessee had not categorically asserted that the lead batteries dealt by the assessee were not meant for motor vehicle batteries; the stand taken by the assessee is not quite clear. In one para, the assessee stated :
"The battery plates may be accessories to the batteries, they cannot be treated as parts since the battery plates are used other than the batteries of motor vehicles, also and therefore the same cannot be brought under schedule entry 73-B of the Second Schedule."
In another part, assessee stated :
"Thus the battery plates are also not a device which is essential or integrated part of motor vehicles but merely a supplement not a part to bring the item as part of the batteries of the motor vehicles as proposed in the above show cause notice under entry 73-B."
25. Again, in another place there is a general assertion that "battery plates manufactured and sold separately not particularly for the batteries of the motor vehicles ...". The main thrust of the objections was to emphasise that lead battery is not a "part" of the battery. The assessee did not appear before the Commissioner, though opportunity was given to the assessee to appear and argue; the Commissioner passed his order on the basis of the material before him including the objections filed by the assessee. Neither the assessing authority nor the Deputy Commissioner found as a fact whether these lead batteries were parts of "motor vehicle batteries"; they decided the question by making a distinction between a "part" and an "accessory".
26. In these circumstances, we are of the view that interest of justice requires a fresh finding on this essential question as to whether the lead batteries dealt by the assessee were meant for motor vehicle batteries; hence we are constrained to remand the case for a fresh consideration by the Commissioner. We clarify that the assessee has to confine his contention only to this aspect alone and no other contention would be available to him before the Commissioner.
27. In the result, for the reasons stated above, the appeal is allowed; the case is remanded to the Commissioner of Commercial Taxes, Bangalore, for a fresh decision in the light of the observations made above.
28. Appeal allowed.