Gujarat High Court
Batliboi & Co. Ltd. vs Sales Tax Officer (I), Class-1, ... on 10 April, 2000
Author: D.M. Dharmadhikari
Bench: D.M. Dharmadhikari
JUDGMENT D.M. Dharmadhikari, C.J.
1. The petitioner, Batliboi & Co. Ltd., is a "dealer" registered under the provisions of the Gujarat Sales Tax Act, 1969 (shortly referred to as, "the State Act")
2. By this petition under article 226 of the Constitution of India, it assails orders of provisional assessment cumulatively marked as annexure A(15) (1 to 8) for the assessment years between October 1, 1988 to September 30, 1992 passed by the Sales Tax Officer No. 1, Class-1, Division-1, Surat in purported exercises of powers under section 41B of the State Act.
3. The petitioner-company in assailing the impugned orders of provisional assessment resulting in imposition of tax, interest and penalty on it for the different assessment years raises a question of the validity of the provisions contained in section 47(4A)(b) of the State Act, whereunder the assessing officers are empowered to levy simple interest at the fixed rate of 24 per cent per annum on the quantum of tax remaining unpaid on assessment or reassessment.
4. The relevant facts in brief leading to the passing of the impugned orders of provisional assessment are as under :
Admittedly, one of the business activities of the petitioner-company is to manufacture air-conditioning package units. The petitioner-company has its factory at Udhna. For the assessment years in question it had transacted business of erection of air-conditioner units within the State of Gujarat, outside the State and in the course of inter-State trade and commerce.
5. The case of the petitioner-company is that air-conditioning package units are manufactured according to the specification of its customers. The company has several branches in the country including one at Ahmedabad and one at Calcutta. The case of the company is that air-conditioning package units manufactured by it at its factory at Udhna are dispatched by it to its branches at Ahmedabad and/or Calcutta by way of branch transfers. Such supply of air-conditioning package units, according to the petitioner-company to the customers outside the State were not sales but were inter-State works contracts and therefore not liable to sales tax under the State Act or the Central Sales Tax Act, 1956.
6. While the assessment proceedings under the State Act were pending, the respondent-sales tax authority in exercise of powers under section 59 of the State Act searched the business premises of the company on December 3, 1996 and its books of accounts were seized. In the seizure effected on December 3, 1996, the Sales Tax Officer, Surat, as has been stated in his order, found the following defects :
"The dealer is taking works contract as per Transfer Advice No. 77509 dated December 26, 1995 stock transfer to Bombay branch is shown at Rs. 2,85,780 but the delivery challan No. 2083 dated December 26, 1995 attached therewith on verification it was found that the goods have been sent to Reliance Industries Limited, Hazira, Surat. It could not be shown that the tax has been paid on such transactions. These goods have been manufactured by the factory here."
7. After impounding the accounts books in purported exercise of powers of section 59(3) and (4) of the State Act, the Sales Tax Officer passed the impugned orders of provisional assessments. In its reply to the show cause notices issued for provisional assessments, the case of the petitioner-company was that the branch transfers from State of Gujarat to destinations outside the State were inter-State works contracts and were not exigible to tax under the State Act. It was contended that such inter-State works contracts cannot also be subjected to tax under the Central Sales Tax Act as the definition of "sale" in the Central Sales Tax Act has not been amended after introduction of clause (29A) in article 366 of the Constitution of India by Constitution (46th Amendment) Act, 1982 correspondingly with the definition of "sale" as amended in the State Act by Gujarat Act No. 14 of 1985 with effect from August 5, 1985.
8. The assessing officer in the impugned orders of assessment has rejected the contention advanced on behalf of the petitioner-company stating that :
"The dealer is not paying tax by considering the transactions as works contract of the branch and as such transactions have been decided to be exigible to tax under the local and the Central Acts, it was decided to assess under section 41B of the Gujarat Sales Tax Act by issuing notice in form No. 36 for protecting the State revenue. The other transactions are to be assessed under section 41(3) and the transactions assessed under section 41B are to be allowed as deduction at the time of assessment under that section."
[The above quoted portion is English translation from the order in Gujarati]
9. The assessing officer thus treating branch transfers as sales in the course of inter-State works contract provisionally assessed the petitioner and imposed on it tax, interest and penalty in different amounts for the different periods in question.
10. The learned Senior Counsel Shri Kaji appearing for the petitioner-company challenges the impugned orders of provisional assessments and raises question of vires of section 47(4A)(b) of the State Act. The main ground urged is that in absence of any amendment to the definition of "sale" in the Central Sales Tax Act after introduction of definition clause (29A) in article 366 of the Constitution, the assessing authority could not have subjected inter-State works contract to tax treating them as inter-State sales merely because after insertion of clause (29A) in article 366 of the Constitution, definition of "sale" in the State Act was substituted by Gujarat Act No. 14 of 1985 with effect from August 5, 1985. It is submitted that taking reasonable view of existing law the authority treated in inter-State works contract as not exigible to tax as they could not be termed as inter-State sales. The company therefore, had not paid tax on its branch transfers. It could legitimately take such a view of its non-liability of tax in view of the two Full Bench decisions of the Punjab and Haryana High Court in the case of East India Cotton Manufacturing Company Limited v. State of Haryana [1993] 90 STC 221 and Thomson Press (India) Ltd. v. State of Haryana [1996] 100 STC 417.
11. We find that on the contention raised on behalf of the petitioner-company, the Supreme Court decisions in Builders Association of India v. Union of India [1989] 73 STC 370 (SC); (1989) 2 SCC 645 and Gannon Dunkerley and Co. v. State of Rajasthan [1993] 88 STC 204 (SC); (1993) 1 SCC 364 also throw a floodlight.
12. The next contention advanced on behalf of the petitioner-company to assail the said provisional assessment orders is that on the facts and legal position stated above, it was not a case where the assessing officer could have any "reason to believe that the dealer has evaded tax" and therefore he could not have taken resort to the provisions of section 41B of the said Act for provisionally assessing the petitioner to tax, interest and penalty for the assessment periods in question.
13. The learned counsel for the petitioner also raised questions of bar of limitation under section 42 of the State Act in assessing the petitioner and validity of the provision of section 47(4A)(b) of the Act conferring, as contended by him, arbitrary and unguided powers on the assessing authority to levy interest at a fixed rate of 24 per cent on the tax remaining unpaid to the extent indicated in the said provision.
14. We have also heard learned Additional Government Pleader, Mr. S. K. Patel appearing for the Sales Tax Department who in his submissions made an attempt to support the impugned orders of provisional assessments. It is contended that the branch transfers were in the nature of inter-State sales and not inter-State works contract as is submitted on behalf of the petitioner.
15. After hearing the learned counsel for the petitioner and the tax authorities, in our considered opinion, the petition deserves to succeed on the short ground that there did not exist any facts, circumstances or grounds for the assessing authority to invoke the power of making provisional assessment under section 41B of the State Act. For the aforesaid reason, which we would shortly elaborate, we do not consider it necessary to decide the other legal and constitutional issues raised on behalf of the petitioner-company. We grant the company liberty to raise all such grounds in its regular assessments pending under section 41 of the State Act.
16. Section 41B providing for provisional assessment reads as under :
"41B. Provisional assessment. - (1) Where the Commissioner has reason to believe that the dealer has evaded the tax, he may, after taking into account all relevant materials gathered by him and after giving the dealer a reasonable opportunity of being heard, provisionally assess to the best of his judgment the amount of tax payable by the dealer.
(2) The provisions of this Act shall mutatis mutandis apply to the provisional assessment as if provisional assessment were an assessment made under this Act."
17. A bare perusal of the abovequoted provision would go to show that resort to provisional assessment can be made by the Commissioner or his delegate as assessing authority only if he "has reason to believe that a dealer has evaded the tax".
18. Neither in its show cause notice issued prior to making a provisional assessment nor in the assessment orders, the assessing authority has recorded reasons or grounds for coming to the conclusion that dealer has evaded the tax. As has been mentioned above in the order effecting the seizure of its account books, the assessing authority found that certain works contracts were liable to be taxed under the Central Sales Tax Act which were in the nature of branch transfers. In the orders of assessment, the assessing authority has reproduced the stand taken on behalf of the assessee that 'such branch transfers were made for completing the works in accordance with the orders and specification of customers outside the State and were not sales but were merely transactions in the course of works contract'. The assessing officer has also in the order of assessment, rejected the contention advanced on behalf of the petitioner that the branch transfers were inter-State works contract and not inter-State sales. He held them exigible to tax under the Central Act. It is on taking such view of law that the assessing officer provisionally assessed the petitioner and consequently imposed tax, interest and penalty on it for the different assessment periods under consideration. On the facts and legal position disclosed by the dealer, we do not find that there existed any grounds and circumstances for the assessing officer to reasonably form an opinion "that the dealer has evaded the tax". Such formation of opinion is precondition for invoking the power of provisional assessment under section 41B of the Act. In its affidavit in reply to the petition, the impugned order and provisional assessments are sought to be supported by stating thus :
"as a very large amount of tax was involved and regular assessment of the petitioner was likely to take time, I decided to make provisional assessment."
19. From the portion quoted above, it is amply clear that at no point of time the assessing officer had any reason to believe that the dealer has evaded the tax. The expression "evasion of tax" conveys mens rea on the part of the dealer. The expression conveys a meaning that the dealer by infringing the law has been trying to avoid payment of tax in due time.
20. We seek some support in taking the aforesaid view of the provisions of section 41B of the Act from the division Bench decision of this Court in Natraj Rubbers v. Sales Tax Officer, Bhavnagar [1999] 113 STC 575, where the similar word "evasion" used in section 62 of the Act was construed denoting "some overt or covert act on the part of the dealer in furtherance of avoiding or to evade the tax".
21. The petitioner-company has contended before the department that all its branch transfers outside the State were transfers in the nature of inter-State works contracts and in absence of the amendment of the definition of "sale" in the Central Sales Tax Act, after introduction of clause (29A) in article 366 of the Constitution, such inter-State indivisible works contracts were not taxable under the Central Sales Tax Act. The petitioner-company thus had not paid tax on such inter-State works contract under a bona fide belief and a view of law taken by it on the basis of two Full Bench decisions of the Punjab and Haryana High Court in East India Cotton Manufacturing Company Limited v. State of Haryana [1993] 90 STC 221 and Thomson Press (India) Ltd. v. State of Haryana [1996] 100 STC 417.
22. For the reasons aforesaid, we are of the opinion that this was not a case where the assessing officer could have resorted to the provisions under section 41B of the Act for provisional assessment of the petitioner and imposition of tax, penalty and interest.
23. We are not at all impressed by the preliminary objections raised on behalf of the department that the assessee having preferred appeals against the provisional assessment orders, this Court should decline to interfere in the case. As has been stated on behalf of the petitioner-company, the appeals have been filed but the appeals have not been admitted and no orders by interim relief have been passed because the petitioner-company has not paid the full amount of tax which is a pre-condition in law for filing appeals. As the alternative remedy of appeal on payment of full tax is an onerous remedy, this Court cannot refuse to exercise its discretion in giving relief under article 226 of the Constitution of India. We rely on the decision of Supreme Court in Paradip Port Trust v. Sales Tax Officer, Cuttack in [1999] 114 STC 178.
24. Consequent to the discussions aforesaid, the petition succeeds and is allowed. All the impugned orders cumulatively marked as annexure A15 (1 to 8) are hereby quashed with liberty to the respondents as authorities of the Sales Tax Department of the State of Gujarat to assess the petitioner by regular assessment under section 41 of the State Act. We also grant liberty to the petitioner to raise all other grounds and contentions, which have been raised before us in the assessment proceedings. The petition is accordingly disposed of. The petitioner shall be entitled to costs of the petition counsel fees Rs. 5,000 if pre-certified. Rule made absolute.
25. Petition allowed.