Allahabad High Court
Commissioner Of Sales Tax vs Madhu Chemical Works on 6 January, 1988
Equivalent citations: [1988]71STC421(ALL)
JUDGMENT R.K. Gulati, J.
1. By this sales tax revision the Commissioner of Sales Tax, U. P., has raised the following two questions for the decision of this Court:
1. Whether, on the facts and circumstances of the case, the Sales Tax Tribunal, Bareilly, was legally justified to decide the appeal involving the disputed tax of more than Rs. 10,000 by a single Member Bench instead of two Members' Bench ?
2. Whether on the facts and circumstances of the case, the Sales Tax Tribunal was legally justified to hold that the assessment to order passed under Section 21, which corrected the inadvertent mistake or omission committed by the assessing authority into the original assessment order was based on change of opinion, so not legally sustainable, without going into the facts of the case fully ?
2. In the assessment year 1972-73, S/s. Madhu Chemical Works, Bareilly, was engaged in manufacture and sale of saccharin. Originally under Rule 41(5) the disclosed turnover of the assessee was taxed at 3.5 per cent. Subsequently, proceedings under Section 21 of the U. P. Sales Tax Act (for short "the Act") were initiated against the assessee and the turnover was assessed to tax at 7 per cent. The justification for taking proceedings under Section 21 of the Act, as stated in the reassessment order, is to the following effect:
...Kardata dwara ghoshit saccharin ki Rs. 2,25,918.43 ki bikri ko sweekar karte huye avargikrit vastuon ki bhanti 3.5% ki dar se kar lagaya gaya tha. Tatapaschat mamle par punarvicharoparant yeh anubhav kiya gaya ki kardata dwara bechi gyai saccharin par kar kee dar 3.5% na hokar chemical ki bhanti 7% ki dar se kar lagaya jana chahiya tha kyonki kardata saccharin mein soda bi carb ek nischit matra mein mishrit karte huye bartate va bechate hain aur soda bi carb milane par saccharin sadharan saccharin nahin kahi ja sakti balki sodium saccharin ho jati hai jo ki ek prakar ka chemical hai.
3. From the above, it is evident that the action for reassessment was necessitated as after the original assessment and on reconsideration of the matter the Sales Tax Officer felt that assessee's turnover should have been taxed at 7 per cent as "chemical". This was so, because in manufacturing saccharin the assessee adds soda-bi-carb and the product obtained thereby is a fresh chemical compound which was sold by the assessee. In the original assessment, the turnover of saccharin was taxed as unclassified commodity whereas in the reassessment order it was treated as classified item which at the relevant time was taxable at a higher rate, namely, at 7 per cent.
4. In appeal, the Assistant Commissioner (Judicial) annulled the reassessment proceedings and consequently, set aside the reassessment order passed under Section 21 of the Act. This action of the Assistant Commissioner was upheld by the Sales Tax Tribunal in second appeal filed at the instance of the department. The Revenue has now come up in this revision under Section 11(1) of the Act with the aforesaid two questions against the order passed by the Sales Tax Tribunal.
5. The controversy raised by the first question is that appeal giving rise to this revision was cognizable by a Bench of the Sales Tax Tribunal consisting of two Members, whereas it was decided by a single Member, thus the impugned order passed by the Sales Tax Tribunal is a nullity.
6. Section 10(10)(a) of the Act provides that an appeal against the order of the appellate authority under Section 9 shall be heard and disposed of by a Bench of two Members, where such an order is passed by a Deputy Commissioner (Appeals) or the amount of tax, fee or penalty in dispute exceeds ten thousand rupees; and by a single Member in any other case. According to the Revenue the amount of tax involved in the appeal was Rs. 16,944 and thus the appeal could have been decided by a Bench of two Members only. It may be noticed that Rs. 16,944 is the amount of tax imposed on 7 per cent on the taxable turnover. It also includes the amount of tax which was initially imposed by the original assessment when the turnover was brought to tax at 3.5 per cent treating the saccharin as an unclassified commodity. The words employed in Section 10(10)(a) are "when the tax...in dispute exceeds ten thousand rupees". The important thing is the amount of tax in "dispute". The fact that an assessment order involves an amount of tax exceeding ten thousand rupees, is not material. There may be any amount of tax involved in an assessment but in order that an appeal may be heard by two Members Bench, it must be shown that the amount of tax disputed by the tax-payer or the appellant is over rupees ten thousand. In the instant case, the assessee did not dispute its liability to pay tax at 3.5 per cent plus an additional amount at 5 per cent on the turnover in excess of Rs. 2 lacs which was charged under Section 3-F of the Act by the original assessment order. The aggregate admitted liability by the assessee was Rs. 9,036.73. Deducting the amount of tax on which there was no contest from the tax levied by the reassessment order, the disputed tax in appeal was less than Rs. 10,000. The learned Standing Counsel, appearing for the Revenue, when confronted with these facts conceded the position and gave up the point at issue. The first question is, therefore, decided by saying that as the tax in dispute was less than Rs. 10,000 the appeal giving rise to this revision was rightly tried by a single Member of the Sales Tax Tribunal.
7. This brings me to the second question raised in this revision. The argument advanced for the Revenue is, that in the original assessment by an inadvertent mistake or omission the Sales Tax Officer taxed the turnover of saccharin at 3.6 per cent, inasmuch as, the assessee failed to disclose the fact that it adds soda-bi-carb in manufacturing saccharin which was sold by it during the year. It is, urged, that this mistake was corrected by taking recourse to reassessment proceedings, which the Sales Tax Officer was entitled in law to do so. The concurrent findings recorded by the appellate authorities are that there was no material with the Sales Tax Officer other than his subjective view for taking proceedings under Section 21 of the Act. These authorities have held that it is a case where proceedings for reassessment have been taken on a change of opinion by the Sales Tax Officer. The correctness of this view is challenged in this revision by the Revenue.
8. A perusal of Section 21 of the Act makes it clear that in order to proceed under it, the assessing authority must have reason to believe that whole or any part of the turnover has escaped assessment or has been under-assessed or has been assessed to tax at a rate lower than that at which it was assessable under the Act or any deduction or exemption had wrongly been allowed in respect thereof, the assessing authority may after issuing notice to the assessee and making such enquiry as it may consider necessary, assess or reassess the assessee.
9. The question, therefore, that crops up for consideration is whether or not the assessing authority had "reason to believe" that an action as contemplated by the provisions of Section 21 was required in this case and whether the said authority had any material for entertaining such a belief.
10. Before proceeding any further, it is necessary to resolve a factual aspect, namely, was there any failure on the part of the assessee at the time of original assessment to disclose that it adds soda-bi-carb in manufacturing the saccharin sold by it. A statement appearing in the original assessment order is relevant in this connection which read as under:
Kardata saccharin mein soda bi carb milakar bechate hain. Kardata dwara bataya gaya ki soda bi carb vajan barhane ke liye milaya jata hai aur is prakar ki saccharin vastuon ko meetha karne ke prayog mein aati hai.
11. It is clear from the above, that, the assessee mixes soda-bi-carb to manufacture saccharin, was before the assessing officer at the time of original assessment. He was aware of the product manufactured by the assessee and its contents. After considering all this and after fully applying his mind he held that saccharin manufactured by the assessee was an unclassified commodity liable to tax at 3.5 per cent. These are also the findings of fact recorded by the appellate authorities.
12. The important words in Section 21 are "reason to believe". The formation of belief regarding escaped assessment constitutes the sine qua non for taking action under this section. The expression "reason to believe" was construed by the Supreme Court in Commissioner of Sales Tax v. Bhagwan Industries (P.) Ltd. [1973] 31 STC 293. Explaining the import of these words, the court observed:
In our opinion, these words convey that there must be some rational basis for the assessing authority to form the belief that the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax for some year...Reasonable grounds necessarily postulate that they must be germane to the formation of the belief regarding escaped assessment...the belief must be held in good faith and should not be a mere pretence.
13. Unlike, as required in the corresponding provisions of the Income-tax Act for initiating proceedings under Section 21 of the Act the Sales Tax Officer is not required to record his reason for his belief before taking proceedings. What is required is that the assessing authority must be objectively satisfied about the existence of some or any one of the grounds mentioned in Section 21, conferring jurisdiction on him to make reassessment. A belief cannot be reasonable in case it is purely subjective formed without reference to any other objective fact. In Commissioner of Sales Tax, U.P. v. Jagdish Prasad Satish Prasad [1979] 43 STC 415 (All.), C. S. P. Singh, J., pointed out:
...the words 'reason to believe' used in Section 21 of the Act cannot be interpreted to encompass within its fold a mere change of opinion...Change of opinion without reference to any other objective material would be a subjective belief and not an objective one.
14. What had happened in the above case was that in proceedings under Rule 41(5), the Sales Tax Officer had considered the sales of foodgrains made by the assessee on behalf of the ex-U. P. principals and held them to be non-taxable. Subsequently, taking the view that those sales were taxable, he issued notices under Section 21 of the Act. This action was taken on the subjective view of the Sales Tax Officer, there being no other material on record. The proceedings under Section 21 were struck down by this Court holding that the action was based on change of opinion.
15. In Commissioner of Sales Tax v. Gopalji, Varanasi 1974 UPTC 277, a Division Bench of this Court held:
Merely because he (the Sales Tax Officer) has got second thoughts about the applicability or effect of the survey, it cannot be said that he had 'reason to believe' within the meaning of Section 21 that any turnover has escaped assessment.
16. In Commissioner of Sales Tax, U.P. v. Nam Raj Singh 1981 ATJ 361, the assessee claimed exemption in respect of sales of timber purchased within Uttar Pradesh, which was allowed by the assessing authority. Subsequently, the assessing authority found that under the relevant notification only certain types of timber which was specifically mentioned was entitled to exemption. As the assessee had not disclosed full particulars of the timber purchased, there was escapement of turnover from tax. Accordingly, action was taken under Section 21 of the Act. The matter was contested by the Revenue before this Court, one of the contentions being that at the time of the original assessment no consideration was made of the relevant notification, and therefore, it cannot be said that proceedings under Section 21 were taken as a result of change of opinion. While rejecting the contention a learned single Judge of this Court held:
It is correct that in the order no mention whatsoever was made of this notification. But since there was no provision allowing exemption other than this notification, it will have to be taken that while allowing the exemption the assessing authority had this notification in its mind. Therefore, when action was taken subsequently under Section 21 of the Act, for the reason that the assessee had not furnished details of the type of trees, the timber of which he had purchased, it will be only as a result of change of opinion which cannot be permitted. This being so, the assessing authority had no jurisdiction to take action under Section 21 of the Act.
17. In Commissioner of Sales Tax v. Adarsh Paper and Board Manufacturing Company 1985 UPTC 15, "mill board" was treated as a kind of paper by the Sales Tax Officer in three consecutive preceding years, namely, for the years 1975-76 to 1977-78, and taxed as paper under a particular notification after considering the matter in great detail. In the year in dispute the Sales Tax Officer took a different view and taxed the turnover of "mill board" as unclassified commodity. The assessments of the three preceding years were also reopened under Section 21 of the Act. The initiation of proceedings under Section 21 was struck down by this Court on the ground that action was based on change of opinion by the Sales Tax Officer and not because of non-application of mind.
18. In Palco Lining Co. v. Slate of U.P. 1983 UPTC 1116, the assessee's account books were accepted in original assessment proceedings with a finding that the "collar lining" sold by the petitioner was a variety of cotton fabric and exempt from tax liability. Subsequently, proceedings under Section 21 were taken on a question that the commodity which the petitioner sold, namely, "collar lining", was a distinct commercial commodity known as such to the people in the trade than cotton fabric simpliciter. The attempt of the Revenue in proceedings under Section 21 was to tax the turnover of collar lining as unclassified item not all variety which was exempt from tax under the relevant notification. A Division Bench of this Court explaining the scope of Section 21 ruled that this section does not permit reassessment of turnover which, after due consideration, had been found not exigible to tax merely because the assessing authority subsequently comes to take a different view of the matter. It was held:
Irrespective of the amplitude of the language used in Section 21 of the Act, reassessment proceedings are not permissible on mere change of opinion by the taxing authority at a subsequent stage. The petitioners are right in their submission that issuance of a notice under Section 21 of the Act in the present cases was without authority of law.
19. Similar views have also been expressed by this Court in Commissioner of Sales Tax, U.P. v. Dwarica Das Varun Kumar 1979 UPTC 1152, Sadhu Ram fugal Kishore v. Commissioner of Sales Tax 1985 UPTC 112, Agarwal Wooden Products v. Commissioner of Sales Tax 1985 UPTC 838 and Commissioner of Sales Tax, U. P. v. Steel Engineering Corporation [1981] 48 STC 432.
20. The principle, therefore, which emerges from a consideration of above authorities is that once a final assessment has been made, there must be a point of finality. The same issue should not be reactivated beyond a particular stage. The rule of finality is that the assessing officer cannot change his mind and try to reopen the closed state of affairs, but if it is a case where the reopening is sought basing the belief on an objective consideration of the material in his (the Sales Tax Officer) possession, which leads to a reasonable belief that there had been escapement and that material is not the product of a change in mood but is attributed to concrete material noticed by him then the assessment can be allowed to be reopened.
21. The distinction between an advertent mistake or omission and change of opinion is well-settled. In a case where a particular point has been considered on merits, and a view is taken, it would not be a case of inadvertent mistake or omission, if it is found that the view taken earlier was wrong. It would be a case of change of opinion, but if it is not so, then it would be a case of non-application of mind and certainly an action would be justified under Section 21 of the Act [see Commissioner of Sales Tax v. Steel Engineering Corporation [1981] 48 STC 432 (All.)]. A Division Bench of this Court in Hindustan Insulated Cable Co. v. Commissioner of Sales Tax 1978 UPTC 561, held that where the Sales Tax Officer accepted the account books by inadvertence or oversight of a survey report which was on record, had jurisdiction to proceed under Section 21 of the Act. For this statement of law the court referred to a decision of the Supreme Court in Anandji Haridas and Co. (P.) Ltd. v. S.P. Kushare [1968] 21 STC 326 and relied on the observations which were to the following effect:
In Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, Bihar and Orissa [1959] Supp 1 SCR 10 this court laid down that the expression 'has escaped assessment' in Section 34(1)(b) of the Indian Income-tax Act, 1922, is applicable not only where the income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted, but also where a return has been submitted but the Income-tax Officer erroneously failed to tax a part of the assessable income.
22. Bearing these principles in mind when the facts of the present case are examined, I find it is a clear case of change of opinion. From the original assessment it is evident that processes of manufacturing saccharin was disclosed by the assessee to the assessing authority. The fact that the assessee mixes soda-bi-carb in manufacturing saccharin was pointedly brought to the notice of said officer. The Sales Tax Officer knew all the facts and he then taxed the turnover at 3.5 per cent treating saccharin manufactured by the assessee as an unclassified commodity. The action under Section 21 was taken on a second thought when the officer wanted to tax the same turnover at 7 per cent instead of 3.5 per cent treating saccharin as classified commodity which was earlier taxed as unclassified commodity. It was clear attempt to circumvent the view which had become final. The character of facts being the same it could not on the second occasion instil a reasonable belief in the Sales Tax Officer without any new facts that turnover had escaped assessment or had been taxed at lower rates.
23. In view of the above discussion, the order passed by the Sales Tax Tribunal annulling the reassessment proceedings cannot be held to be erroneous. This revision has no merits and is dismissed with costs.