Karnataka High Court
Sri Kottureswara Rice & Oil Mills And ... vs The State Of Karnataka And Ors. on 1 July, 1988
Equivalent citations: [1988]71STC356(KAR)
ORDER S.R. Rajasekhara Murthy, J.
1. The petitioners are registered dealers under the Karnataka Sales Tax Act (the Act). For the period ending 31st March, 1979, they filed returns disclosing the gross and taxable turnover in form No. 4. The notices issued under section 28(1) of the Act by the second respondent calling upon the petitioners to produce the books of accounts for the said period, are challenged in these writ petitions.
2. Under rule 26(10) of the Karnataka Sales Tax Rules, the dealers registered under the Act are required to preserve all the accounts maintained by them together with all vouchers, declarations, way-bills, etc., for a period of 5 years after the close of the year to which they relate. This rule was amended with effect from 1st April, 1986 by the Karnataka Sales Tax (Amendment) Rules, 1986. The effect of the amendment is, the five years period mentioned in the said rule has been substituted with the following words "till the assessment for the year to which they relate has become final".
3. Notices under section 28(1) of the Act was issued to the petitioners to produce the books of accounts for the year 1978-79 for the purpose of verifying the correctness of the statement made in the return.
4. The contention of the learned counsel for the petitioners is that as per rule 26(10) that was in force during 1978-79 when they submitted the returns, they were expected to preserve books of accounts only for a period of five years from the close of the year to which they relate, viz., 1978-79, and the assessing officer has no power to issue notice on 1st September, 1987 calling upon the petitioners to produce the books of accounts relying upon the amended rule. He argued that the petitioners are under no obligation to produce the books of accounts in response to the notices which are issued beyond 5 years from the close of the relevant year.
5. The other contention of the learned counsel is that the returns filed by the petitioners have to be accepted without any further enquiry and the assessment completed on the basis of the returns. From the stand taken by the petitioners, and the conduct of the petitioners, it is clear that they do not want to produce the books of accounts to enable the assessing authority to complete the assessment.
6. The argument of the petitioners has to be appreciated and tested having regard to the provisions of the Act and its scheme. Chapter V provides for filing of returns, assessments, recovery, etc. Section 12 deals with returns and assessment. The petitioners, in the present case, have complied with the requirement of section 12(1) and they have submitted the returns relating to the turnover for the year within the prescribed period.
7. If the assessing officer is satisfied that the returns submitted by the dealers under sub-section (1) of section 12 of the Act is correct, they may complete the assessment without any further enquiry. If the assessing officer finds that the return submitted by the dealer appears to be incorrect or incomplete, be may proceed to make a best judgment assessment. But, before making any such assessment, the statute requires that the dealer should be given an opportunity of proving the correctness and completeness of the return submitted by him. For this purpose the provisions of section 28 empower the assessing officer to order production of accounts for the purpose of assessment.
8. Rule 26-A prescribes the form in which the notice under section 28(1) is required to be issued, namely, form 27-A. The present notices which are challenged in the first writ petition is one such notice issued for the year 1978-79.
9. The contention of the learned counsel is that the petitioners are not bound nor are they under any statutory obligation to produce the books of accounts beyond the period of 5 years prescribed under rule 26(10).
10. Rules are made to carry out the purposes of the Act and to administer it. Part IV of the Rules contains rules regarding the nature of accounts to be maintained by the dealers and licensees. The accounts maintained in accordance with this rule can be ordered to be produced in exercise of the powers conferred on the assessing officer under section 28(1); they shall be open to inspection at all reasonable times; they are also liable to be seized by virtue of powers conferred under section 28(3).
11. A statutory obligation is thus cast on the dealer not only to maintain the accounts as required by the rules but also to preserve them for the purpose of production whenever called upon to do so by the assessing officer.
12. The department, perhaps, realised the practical problems they were facing in view of the 5-year period allowed to the assessees under section 26(10) to preserve the accounts. The legislature has now amended the rules by Amendment Rules, 1986 published in the Karnataka Gazette dated April 1, 1986 under which the period of 6 years is substituted and the dealer is now expected to preserve the books of accounts till the assessments for the year to which they relate has become final.
13. The point that arises for decision on the submissions made by Sri Katageri is, whether it is permissible for the assessee-dealer, relying upon the old rule 26(10) to refuse to produce the books of accounts and also to contend that he is not under any statutory obligation to produce them after a period of five years from the close of the year to which they relate ?
14. In order to appreciate these contentions, we have to look to the purpose of rule 26(10) which was in vogue till the 1st of April, 1986, from which day it was substituted by the new rule. Under that rule, every dealer was required to preserve the accounts for a period of five years.
15. The argument of Sri Katageri is that this new rule is applicable only to assessments to be completed after 1st April, 1986. After its amendment in the year 1986, a statutory obligation is now cast on all the dealers under the new rule to preserve the accounts till the assessment becomes final.
16. Does it, mean that the dealers whose assessments were not completed as on 1st April, 1986 can put forward a plea or excuse that they need not produce the books of accounts, though ordered to be produced under section 28(1), solely relying on the old rule ?
17. Can dealers take such a stand having regard to the other provisions of the Act dealing with the procedure to assess, namely, sections 12 and 28 ? If the dealer's return is not accepted as correct and complete, the assessing authority can proceed to make a best judgment assessment recording the reasons for such assessment. But the dealer should be given reasonable opportunity of proving the correctness of the return before action is taken to make the best judgment assessment. What is the scope of this reasonable opportunity is also an important question that arises for consideration ?
18. Can a dealer refuse to comply with the notice issued under section 28(1) relying on rule 26(10), and allow the assessment to be completed on the best of judgment, or is it in his interest to produce the books and satisfy the assessing authority about the correctness of the return ?
19. Let me now advert to the scheme of the assessment and the rules governing the assessments under the Act in order to appreciate the contention of the petitioner.
20. Rule 6 provides for the procedure to be observed in making the assessments. The taxable and total turnover has got to be determined for the purpose of assessment under the Act. Both the expressions are defined in section 2(u-1) and 2(u-2). What is relevant to notice is the definition of taxable turnover on which every dealer has to pay the prescribed tax under the charging section 5.
"'taxable turnover' means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed, but shall not include the turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India."
21. Rule 6 comes into play again. Sub-rule (2) provides for the deductions permissible under the Rules. [see rule 6(iv)(a) to (k)].
22. Therefore, any claim as to the deductions under rule 6 has to be proved only with reference to the accounts of the dealer.
23. Monthly returns are filed in form 3 under section 12B and in form 4 for purposes of section 12 at the end of the year within the prescribed time. Any final assessment is to be completed only after a scrutiny of accounts and after enquiry as is considered necessary. The very registration of a dealer depends upon his total turnover, the limit for which is fixed in rule 9.
24. On a scrutiny of the accounts if it is found that the return submitted by the dealer appears to be incorrect and incomplete, a notice in form 31A (proposition notice) is required to be given by the assessing authority. A dealer who deals in goods exigible to tax at different rates under the Act, has to file his return specifying the total taxable turnover separately in respect of each such class of goods. A separate analysis of the turnover, the details relating to the turnover or transactions in respect of which exemptions are claimed and all other necessary details are required to be furnished along with the annual returns.
25. In the light of these provisions contained in the Act and the Rules which provide for a detailed procedure to be observed before an assessment could be made under the Act, is it the assessee's contention that such assessment can be done without reference to his own accounts ? Such an argument has to be rejected outright as only suicidal besides being misconceived.
26. The reasoning found in the decision of the Bombay High Court in the case of Commissioner of Sales Tax v. Ramdas Laxmidas [1976] 38 STC 354, is to be accepted as the correct approach and the petitioner's contention is liable to be rejected for the very reasons given by their Lordships in the said case. Their Lordships held that though rule 41-A of the Bombay Sales Tax Rules cast an obligation upon the dealers to preserve the accounts, etc., for a period of three years after the expiry of the year to which they relate, the High Court held that as a rule of prudence, though not on the grounds of an implied obligation, the dealer should preserve his evidence until the assessment proceedings are completed. Their Lordships, however, restricted such obligation to preserve the accounts for the purpose of original assessment proceedings only.
27. The present amended rule 26(10) is meant to achieve the same object and is, therefore, meant to be observed by the dealers and the said rule is required to be applied to all pending assessments since there is no time limit to complete the assessments under section 12(3).
28. Let me now refer to the decisions relied upon by Sri Katageri, the learned counsel.
(i) Commissioner of Income-tax, Bombay City-I v. Narsee Nagsee and Co. .
That was a case under the Business Profits Tax Act, 1947.
29. The question that came up for decision in the said case was about the validity of notice issued under section 11(1) after the period of five years.
30. Section 14 imposed a time-limit within which a notice to the assessee to bring to tax the escaped assessment, could be issued. On the facts of the said case, the proceedings of assessment which were started after fiveyear period were held to be without jurisdiction and hence the assessment was declared invalid.
31. Sri Katageri has relied upon the observations made in paragraph 8 of the said judgment, which is not relevant nor is it applicable to the facts of the present case.
(ii) State of Andhra Pradesh v. Donthala Rajaiah [1960] 11 STC 819 (AP).
32. That was a case where the assessee had submitted his return voluntarily beyond three years from the end of the year. The High Court held, that there is no legal bar to complete the assessment and it was competent for the taxing authority to excuse the delay in exercise of its discretion and make the assessment on the basis of it.
(iii) Bata India Limited v. State of Haryana [1983] 54 STC 226 (P & H).
33. None of the above decisions help the petitioners' case and they are not relevant.
34. On an examination of the scheme of the Act and the Rules, the arguments of the petitioners in all these cases, have to be rejected as having no substance in them. I further hold that the new rule 26(10) as amended by the Karnataka Sales Tax (Amendment) Rules, 1986, is applicable to all pending assessments, they are more procedural in nature and do not create or divest any right of the dealer.
35. The writ petitions are, therefore, dismissed with costs of Rs. 200, one set.
36. Writ petitions dismissed.