Kerala High Court
V.S. Prabhakaran And Co. vs State Of Kerala on 8 November, 2000
Equivalent citations: [2001]121STC586(KER)
JUDGMENT S. Sankarasubban, J.
1. This tax revision case is filed by the assessee against the order of the Tribunal in T.A. No. 94 of 1997, The relevant assessment year is 1987-88, The assessee, V.S. Prabhakaran & Co., was a partnership-firm doing business in arrack during the year 1987-88. During the relevant period, arrack is liable to be taxed only at the first point of sale in the State at the rate of 40 per cent under entry 36A of the First Schedule up to June 30, 1987 and thereafter at the rate of 45 per cent under entry 11 of the First Schedule to the Kerala General Sales Tax Act, 1963 (hereinafter referred to as "the Act").
2. According to the assessee, it is not liable to pay any tax as they are only second sellers. As such, they did not file any monthly return in form No. 9 or annual return in form No. 8. According to Section 17(1), every dealer who is liable to pay tax shall submit such returns relating to his turnover in such manner and within such period as may be prescribed. Rule 21 of the Kerala General Sales Tax Rules, 1963 provides that every dealer who is liable to pay tax under the Act and every dealer who is required to do so by the assessing authority by notice shall submit returns. After the lapse of more than nine years, on July 20, 1996, the petitioner was served with notice dated June 24, 1996 under Section 17(3) of the Act proposing to complete the assessment on best of judgment for a huge turnover.
3. On receipt of the said notice, the petitioner-firm filed a reply pointing out that the proposal dated June 24, 1996 to complete the assessment on best of judgment is not sustainable in law as it is barred by limitation. As the petitioner failed to file any monthly return or annual return, the notice should have been issued under Section 19 of the Act. Under Section 19 of the Act, a period is prescribed and the present notice is beyond that period and hence, it is barred by limitation.
4. The assessee also filed objections against the turnover assessed. The assessing authority rejected the contention of the petitioner. The appeal was also dismissed. An appeal was filed before the Tribunal by the petitioner and cross objection was filed by the State Government. Regarding the question of limitation, the Tribunal took the view on the basis of the decision in Evergreen Fragrances v. State of Kerala [1993] 90 STC 39 (Ker), that there is no question of escaped assessment when the original assessment is not concluded. Accordingly, the court held that there is no bar of limitation. So far as stock verification is concerned, it held that the non-production of stock register can be considered for estimation of turnover to a limited extent. Ultimately, the court was inclined to set aside the assessment and remit it back for fixing the stock verification as per inspection dated November 13, 1987 and for reasonable estimation of turnover based on the stock verification to be fixed afresh. It is against the above order that the present revision is filed.
5. The main contention urged by the petitioner is that the assessment is barred by limitation. As already seen, the assessment year is 1986-87. Admittedly, the petitioner received notice under Section 17(3) of the Act only on June 24, 1996, which is nearly nine years after the end of the assessment year. Petitioner was served with form No. 51 summons on March 26, 1991, April 29, 1991, September 9, 1991 and April 29, 1992 to produce certain documents. The question for consideration is whether the assessment is barred by limitation. Section 17 of the Act deals with the procedure to be followed by the assessing authority with regard to the assessments. Section 17(1) of the Act says that every registered dealer and every dealer liable to take out registration under this Act shall submit such return or returns relating to his turnover in such manner and within such period as may be prescribed. Sub-section (2) says that if the assessing authority is satisfied that any return submitted under Sub-section (1) is correct and complete, it shall assess the dealer on the basis thereof. Under Sub-section (3) of Section 17, if no return is submitted by the dealer under Sub-section (1) within the prescribed period, or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority shall, after making such enquiry as it may consider necessary and after taking into account all relevant materials gathered by it, assess the dealer to the best of its judgment. Before making the assessment, notice has to be issued. The question for consideration before us is whether since no return was filed by the assessee, the power under Section 17 of the Act can be deemed to be exercised with regard to the escaped assessment and therefore the question of limitation will apply to such escaped assessment.
6. Learned counsel for the petitioner brought to our notice a decision of this Court reported in K. Baby v. State of Kerala [2001] 121 STC 569 ; 1997 KLJ (TC) 633. In that case, the assessment years in question were 1985-86 to 1988-89. The assessee did not maintain the account books relating to the business and he did not also file any return in respect of the above years. Therefore, the assessing authority completed the assessments on best of judgment on the basis of the details gathered during the inspection of the mill made on February 16, 1989. The question arose whether there was limitation. In paragraph 5 of the above decision, it was observed thus : "This is a case where the dealer has not filed any return for the assessment years in question though he is legally bound to do so under Section 17(1) of the Act. If no return is submitted by the dealer within the prescribed period, the assessing authority is empowered to make inquiry and to complete the assessment to the best of its judgment under Section 17(3). But since the turnover involved in such assessment is amounted to 'escaped turnover' the period of limitation provided under Section 19 of the Act would apply to such assessments. Under Section 19(1) the assessing authority shall proceed to determine to the best of its judgment the turnover which has escaped assessment to tax at any time within four years from the expiry of the year to which the tax relates".
7. In Regional Assistant Commissioner of Sales Tax, Indore v. Malwa Vanaspati and Chemical Co. Ltd. [1968] 21 STC 431, the Supreme Court was considering the provisions of the Madhya Bharat Sales Tax Act. Under Section 8(1)(a) the assessment of taxable turnover and determination of tax due for any year, shall be made after the returns for all the periods of that year have become due, provided..........(b) Notwithstanding anything contained in Clause (a) if any dealer fails to submit a return under Section 7(1) for the prescribed period within the prescribed time, the assessing authority shall, after making such enquiry as he considers necessary and after giving the dealer a reasonable opportunity of being heard, determine the turnover of the dealer for the said period to the best of his judgment and assess the tax on the basis thereof. Section 10 deals with escaped assessment. The question arises whether a notice issued under Section 8(2) should be within three years as stated in Section 10. In dealing with that question, the Supreme Court held as follows : "There is no doubt that where the dealer has not filed the prescribed return of his turnover, the case is clearly one of 'escaped assessment', and the proceeding for assessment must commence in respect of that turnover within the period prescribed by Section 10. Where however a return is filed by a dealer under Section 7, a proceeding for assessment commences, and a notice under Sub-section (2) of Section 8 is a step in the proceeding for completing the assessment". In R.E.M. Ramakutty Nadar v. State of Madras [1973] 31 STC 44 (Mad.), a same question arose. After referring to the decision in Regional Assistant Commissioner of Sales Tax, Indore v. Malwa Vanaspati and Chemical Co. Ltd. [1968] 21 STC 431 (SC), the Madras High Court held that when an assessee has not submitted any return it should be taken as a case of escaped assessment and Section 16 of the Tamil Nadu General Sales Tax Act, 1959, alone can be invoked by the assessing authority. But, in such a case, an order passed by the assessing authority cannot be nullified merely on the ground that it purports to be an order under Section 12, because, where an authority passing the order has the requisite power, a mere reference to a wrong provision of law in the order will not invalidate the same. The power to assess escaped turnover under Section 16 and the power to assess the turnover returned by the assessee under Section 12(2) are exactly the same, except in respect of two matters, namely, (1) the power under Section 16 is to be exercised within a specified period, but Section 12(2) does not impose any limitation [and (2) white passing an order, under Section 12(2) levying a penalty the assessing officer is not required statutorily to give any finding as to whether there was any wilful non-disclosure of the assessable turnover by the dealer, whereas Section 16 insists that such a finding is necessary before penalty is levied.]--Ed.. In State of Madras v. S. Balu Chettiar [1956] 7 STC 519, the Madras High Court held as follows : "Where an assessee did not file at any time a return of his turnover for a year, whether due to omission or deliberate concealment on his part, Rule 17 of the Madras General Sales Tax Rules, 1939, applies and an assessment has therefore to be made within the period of limitation mentioned in that rule". According to us, this case squarely come within the decisions reported in K. Baby v. State of Kerala [2001] 121 STC 569 (Ker) ; (1997) KLJ (TC) 633 and Regional Assistant Commissioner of Sales Tax, Indore v. Malwa Vanaspati and Chemical Co. Ltd. [1968] 21 STC 431 (SC). If no return is filed, it has to be treated as escaped assessment and hence, limitation under Section 19 of the Act will apply.
8. The next question is whether a demand in form 51 notice will save the limitation. In T.R.C. No. 54 of" 1982 a division Bench consisting of P. Subramonian Poti and T. Chandrasekhara Menon, JJ., considered the question whether direction to produce documents can be taken as a notice. There, the court said that a mere direction to produce accounts does not indicate that the officer has proceeded to determine the turnover that has escaped assessment. Therefore, that notice cannot be said to be a notice in accordance with Section 19. In T.D. Davis v. State of Kerala [2001] 121 STC 567 (Ker) ; (1997) KLJ (TO 112, a Division Bench of this Court consisting of V.V. Kamat and K. Narayana Kurup, JJ.. was considering a similar question whether serving of form 50 notice will apply to the statutory compliance of Section 19. There, the court held that it will not apply.
9. In the above view of the matter, we are of the view that the assessment proceedings are barred by limitation and hence, the entire orders are set aside. Tax revision case is allowed.
Order on C.M.P. Nos. 3071 and 3660 of 1998 in T.R.C. No. 310 of 1988 dismissed.