Bombay High Court
Commissioner Of Sales Tax, Maharashtra ... vs Maharashtra Hardware Stores on 30 March, 1990
JUDGMENT T.D. Sugla, J.
1. The common question of law raised in these references at the instance of the Commissioner is :
"Whether, on the facts and in the circumstances of the case and on a true interpretation of section 57 of the Bombay Sales Tax Act, 1959, the Tribunal was correct in coming to the conclusion that the Assistant Commissioner of Sales Tax had no jurisdiction to revise the resale claim of the assessee for the period in question ?"
2. The applicant is partnership firm. The proceedings relate to its assessments under the Bombay Sales Tax Act for the periods from October 18, 1963 to November 4, 1964, from November 5, 1964 to October 24, 1965 and from October 25, 1965 to November 12, 1966. The assessments were completed on September 9, 1967, November 20, 1967 and February 7, 1969, respectively. It is pertinent to mention that the Sales Tax Officer had computed amount of deduction on account of resale claim under section 8(ii) of the Bombay Sales Tax Act by applying pro rata or proportion method as the applicant was not able to identity its resales with the purchases from registered dealers. The amounts of deduction for the three periods were computed by the Sales Tax Officer at Rs. 11,94,078, Rs. 8,48,778 and Rs. 9,48,872 respectively.
3. Subsequently, the Assistant Commissioner of Sales Tax felt that the Sales Tax Officer should have further reduced the gross turnover by sales exempt under section 11 before applying the pro rata formula and that the assessment orders were, thus, erroneous. Accordingly, after allowing the applicant opportunity of being heard, he revised the orders of assessment under section 57 of the Act reducing the amounts of deduction under section 8(ii) respectively to Rs. 8,78,987, Rs. 7,12,921 and Rs. 6,74,479. The aforesaid orders were confirmed in appeal. Second appeals were, however, allowed by the Tribunal. The Tribunal held that the pro rata formula applied by the Sales Tax Officer did not suffer from any illegality, irregularity or impropriety so as to give the Assistant Commissioner jurisdiction to revise the assessments under section 57.
4. It is common ground that the applicant is entitled to deduction under section 8(ii). It is also common ground that in view of this Court's decision in the case of Commissioner of Sales Tax v. Berar Oil Industries [1975] 36 STC 473, pro rata/proportion formula can be applied for computing the amount of deduction under section 8(ii) in a case where identification of resales covered by that sub-section with the purchases from registered dealers is not possible. The dispute is restricted to the correctness of the formula applied by the Sales Tax Officer. In this context, it is desirable to refer to the orders of revision at pages 24/25, 31 and 35 in the respective paper books. The only mistake, according to the Assistant Commissioner, committed by the Sales Tax Officer was that while applying the percentage of purchases from registered dealers to total purchases reduced by purchases on form 14, he had reduced the gross turnover by sales on from 14 only but not also by sales exempt under section 11.
5. The question, therefore, is whether non-reduction of gross turnover further by sales exempt under section 11 before applying the percentage of purchases from registered dealers to total purchases reduced by purchases on form 14 was erroneous so as to give jurisdiction to the Assistant Commissioner to revise the assessments under section 57 or whether this was only a matter of opinion. The case of the department is that after the order dated December 31, 1974, passed by the Special Bench of the Sales Tax Tribunal in the case of Pratap Singh and Sons, the pro rata formula or proportion method was settled so far as the State of Maharashtra was concerned and since the formula applied by the Sales Tax Officer was contrary to the one approved by the Special Bench of the Tribunal, the application of that formula was erroneous and the Assistant Commissioner had jurisdiction to revise the assessment orders under section 57.
6. Since in justification of the particular method reliance was mainly placed on the order of the Special Bench of the Tribunal, it is necessary to closely examine the order of the Special Bench. The Special Bench has held that proportion or presumption method adopted and followed by the department and upheld by the Tribunal in a number of cases for quantifying resale claim under section 8(ii) should be continued to be followed since in the absence of direct evidence to establish resale claim that method appeared to be quite reasonable and fair. As to the method, the Special Bench observed :
"Under the present method, followed by the department, sale covered by clause (iii) of section 8 of the Act are first deducted and the balance is divided into resales exempt from tax, and taxable sales in proportion to the purchases, in resale block, as against taxable block. On the given facts this method appears to be most reasonable and proper. It has been consistently applied even by this Tribunal."
7. From the Special Bench order which is the main basis of the department's case, it cannot be concluded for more than one reason that the method approved by the Special Bench was the only proper method meaning thereby that all other methods including the one adopted in the present case by the Sales Tax Officer are improper or erroneous. In the first place, the formula adopted by the Sales Tax Officer for arriving at the figure of reduction under section 8(ii) in the present case was in conformity with the formula he had adopted for the earlier period following the Assistant Commissioner's order in revision in the assessee's own case. Secondly, the Special Bench itself qualified its observations in regard to the method approved in that case by such words as "in a given case" such a method may be a most reasonable method. Thirdly, sales under section 11 have necessarily to be out of purchases from persons other than registered dealers. This is a statutory requirement. In the circumstances, if the gross turnover is to be reduced by sales under section 11, there seems to be no good reason for not reducing total purchases by purchases from non-registered dealers. Lastly, the Tribunal in the present case has categorically observed that until the Special Bench decision, different methods were adopted by the sales tax authorities for computing deduction under section 8(ii) in cases where direct identification of resales with the purchases from registered dealers was not possible.
8. From the discussion above, it is evident that other methods including the one adopted by the Sales Tax Officer in the present case cannot be held to be unreasonable, illegal or irregular.
9. As regards the scope of power of revision under section 57, the Supreme Court in Swastik Oil Mills Ltd. v. H. B. Munshi, Deputy Commissioner of Sales Tax, Bombay , reiterated its view taken in the case of State of Kerala v. K. M. Cheria Abdulla and Co. as under :
"It is, therefore, not right baldly to propound that, in passing an order in the exercise of his revisional jurisdiction, the Deputy Commissioner must, in all cases, be restricted to the record maintained by the officer subordinate to him, and can never make enquiry outside that record."
"It would not invest the revising authority with power to launch upon enquiries at large so as either trench upon the powers which are expressly the limitations inherent in the exercise of those powers. For instance, the power to reassess escaped turnover is primarily vested by rule 17 in the assessing officer and is to exercised subject to certain limitations, and the revising authority will not be competent to make an enquiry for reassessing a tax-payer. Similarly, the power to make a best judgment assessment is vested by section 9(2)(b) in the assessing authority and has to be exercised in the manner provided. It would not be open to the revising authority to assume that power."
The power is limited for assuming jurisdiction to revise the order though once the jurisdiction is properly assumed, there is no further limitation while exercising the power. The above decision is followed by this Court in the case of Babulal and Sons v. Assistant Commissioner of Sales Tax, Nagpur [1978] 41 STC 89 and in Commissioner of Sales Tax, Maharashtra State, Bombay v. Indian Tube Company Ltd. [1981] 47 STC 448. In the present case, we are concerned with the assumption of jurisdiction. Since the method adopted by the Sales Tax Officer for computing the resale claims under section 8(ii) cannot be held to be erroneous, the Assistant Commissioner cannot be said to have acquired valid jurisdiction under section 57.
10. In the result, the question of law is answered in the affirmative and in favour of the assessee. No order as to costs.
11. Reference answered in the affirmative.