Bombay High Court
Costa & Co. Private Ltd. vs Sales Tax Officer, Margao And Anr. on 4 October, 2000
Equivalent citations: 2001(2)BOMCR260, 2002(1)MHLJ288
Author: T.K. Chandrashekhara Das
Bench: T.K. Chandrashekhara Das, P.V. Kakade
JUDGMENT T.K. Chandrashekhara Das, J.
1. The petitioner is manufacturer, wholesaler and exporter of quality canned food products. It sells meat and fish in the form of sausages, salami, luncheon meat, frankfurters, pastrami, croquettes, ham, bacon, sorpotel and prawn curry. The petitioner is a registered Sales Tax dealer under the Goa Sales Tax Act, 1964 (hereinafter called 'the Sales Tax Act'). Under the Sales Tax Act all the tax free goods are contained in the Second Schedule. Item Nos. 4 and 5 of the Second Schedule contain Meat and Fish which read as follows :--
"4. Meat (except when sold in sealed metallic or plastic containers).
5. Fish (except when sold in sealed metallic or plastic containers)."
Therefore, under Item 4 of this Schedule, meat supplied and sold by a butcher without a sealed metallic or plastic container alone is exempted from tax. In other words if meat or meat products are supplied in metallic or plastic containers, then it is not exempted from tax.
2. By Assessment Order dated 5th July 1998 for the period 1st October 1986 to 30th September 1987 the Sales Tax Officer treated the turnover of Rs. 15,97,507.34 of the aforesaid goods as tax free and deducted the said amount from the petitioner's gross turnover under Section 7(3)(I) of the Sales Tax Act. But on 29th June 1991 the Sales Tax Officer wrote to the petitioner that in order to satisfy himself about the treating and processing of the aforesaid goods, the petitioner should attend the office of the Sales Tax Officer on 26th June 1991 with the necessary details to convince him about the non-taxability of the goods. The petitioner replied to this letter on 26th June 1991, which is marked in the petition as Annexure P2, giving the particulars, which are as follows -
"1. Fresh Beef-- Fresh Meat Beef is cleaned, put in a polybag and frozen. Has to be cooked before eating.
2. Goa Pork Sausages -- Fresh Meat Pork is cleaned, cut into small pieces, salted, mixed with condiments, filled in medium size dried animal casings, dried and put in a polybag. Has to be cooked before eating.
3. Cocktail Sausages -- Fresh Meat Beef is cleaned, finely minced, mixed with condiments, filled in thin size fresh animal casings, put in a polybag and frozen. Has to be cooked before eating.
4. Frankfurters -- Same as Cocktail Sausages but longer sized. Has to be kept frozen and cooked before eating.
5. Luncheon Meat -- Fresh Meat Beef is cleaned, finely minced, mixed with condiments and pressed in a rectangular mould and frozen. The emerging block is sliced, put in a polybag. Has to be kept frozen and cooked before eating.
6. Corned Beef -- Fresh Meat Beef is cleaned, chemicals added, pressed in a rectangular mould and frozen. The emerging block is sliced and put in a polybag. Has to be kept frozen and cooked before eating.
7. Pastrami -- Fresh Meat Beef is cleaned, mixed with condiments, pressed in a rectangular mould and frozen. The emerging block is sliced and put in a polybag. Has to be kept frozen and cooked before eating.
8. Salami -- Fresh Meat Beef is cleaned, finely minced, mixed with condiments and pork fat, filled in large size dry animal casings and frozen. It is then sliced and put in a polybag. Has to be kept frozen and cooked before eating.
9. Croquettes -- Fresh Meat Beef and Pork is cleaned, finely minced, mixed with condiments, shaped into a small cylinder, frozen and put in a polybag. Has to be kept frozen and before eating has to be rolled in egg batter and bread crumbs and deep fried.
10. Pork Cocktails -- Fresh Meat Pork is cleaned, finely minced, mixed with condiments, filled in thin size fresh animal casings, put in a polybag and frozen. Has to be cooked before eating.
11. Pork Frankfurters -- Same as Pork Cocktails but longer sized. Has to be kept frozen and cooked before eating.
12. Pork Luncheon Meat -- Fresh Meat Pork is cleaned, finely minced, mixed with condiments, pressed in a rectangular mould and, frozen. The emerging block is sliced and put in a polybag. Has to be kept frozen and cooked before eating.
13. Pork Salami -- Fresh Meat Pork is cleaned, finely minced, mixed with condiments and pork fat, filled in large size dry animal casings and frozen. It is then sliced and put in a polybag. Has to be kept frozen and cooked before eating.
14. Ham -- Fresh Meat Pork of pig's thigh is cleaned, salted, pressed in a rectangular mould and frozen. The emerging block is sliced and put in a polybag. Has to be kept frozen and cooked before eating.
15. Bacon -- Fresh Meat Pork and pig's mid-section is cleaned, salted and frozen. It is then sliced and put in a polybag. Has to be kept frozen and cooked before eating.
16. Sorpotel -- Fresh Meat Pork and red edible pork offals are cleaned, cut into small pieces, mixed with condiments and water, cooked, put in a polybag and frozen. Has to be boiled before eating.
17. Prawn Curry -- Fresh prawns are peeled and cleaned, mixed with coconut juice and condiments, cooked, put in a polybag and frozen. Has to be boiled before eating."
On receipt of this letter the Sales Tax Officer by letter dated 17th September 1991 informed the petitioner that he was satisfied that the goods mentioned therein were taxable since the meat was subjected to some treatment with salt and condiments, cut in different sizes and supplied in polybag and that therefore he intended to assess the said turnover which had escaped assessment. In that circumstances, the Sales Tax Officer issued a show cause notice dated 17th September 1991 as to why it should not be reassessed to tax on turnover of the said goods under Section 18 (1) of the Sales Tax Act for the sales made during the period from 1st October 1986 to 30th September 1987. The said show cause notice is annexed to the petition as Annexure P-3. To this the petitioner sent a reply dated 7th October 1991 stating that even though these items were treated it can be treated only as meat so as to enjoy the exemption under Item 4 of the Second Schedule. The petitioner also sent a detailed reply containing arguments in support of the various decisions of the High Courts and Supreme Court. Subsequently the Sales Tax Officer issued a show cause notice dated 2nd June 1992 purportedly under Section 18 of the Sales Tax Act read with Rule 42 of the Rules which is marked as Annexure P-5. In that it was stated that the amount of Rs. 15,97,507.34 was wrongly excluded from the gross turnover for the period 1st October 1986 to 30th September 1987 and the petitioner was called upon to attend the office of the Sales Tax Officer and show cause as to why the sales should not be reassessed and was also called upon to produce bill books and statement of sales. It is this show cause notice that has been challenged by the petitioner in this petition.
3. The Writ Petition was filed on 15th July 1992. It came up before this Court on 22nd July 1992 and by Order dated 21st August 1992 this Court issued Rule and stayed the further proceedings on condition that the petitioner gave a bank guarantee for an amount of Rs. 80,000/-. The respondent No. 1 has filed his reply on 7th August 1992 and rejoinder was filed on 17th August 1992.
4. The learned senior counsel Mr. Kakodkar appearing for the petitioner has contended that the show cause notice Annexure P-5 is liable to be quashed on the ground that the reason for reopening of the assessment stated therein will not be sufficient to invoke the power under Section 18 of the Sales Tax Act. He submits that the 'reasons to believe' occurring in Section 18 will not take in a change of opinion on the part of the Sales Tax Officer with regard to the assessment order already made and that unless the Sales Tax Officer shows that he has 'reason to believe' as has been predicated by the Supreme Court in various decisions he cannot issue Ex. P-5 show cause notice. He, therefore, submits that the reopening of assessment by way of show cause notice, which is impugned in this petition, is without jurisdiction and liable to be quashed. He cited in support of his contention a decision in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta and Anr., . Mr. Kakodkar contended that for the year 1986-87 all the primary and material facts have been disclosed and nothing was suppressed by the petitioner. According to him, in the quarterly returns the petitioner did not show the turnover with regard to meat as it is exempted from sales tax. In the balance sheet filed along with the sales tax returns the petitioner has shown those items as sales of "cold storage products" and claimed exemption and the Assessing Authority had granted exemption and finalized the assessment by its Order dated 5th July 1988. Therefore, according to the counsel, there is no 'reason to believe' for the Sales Tax Officer to impute the escaping of assessment so as to invoke Section 18 of the Sales Tax Act. To fortify his argument he cited paragraph 6 of the aforesaid decision which reads as under :--
"6. To confer jurisdiction under this Section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been under-assessed. The second is that he must have also reason to believe that such "under assessment" has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under Section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or re-assessment beyond the period of four years but within the period of eight years, from the end of the year in question."
According to the counsel for the petitioner, though the decision relates to Section 34 of the Income Tax Act, similar jurisdiction has been given to the Authorities under Section 18 of the Sales Tax Act and unless in case of two omissions, namely, the omission or failure on the part of an assessee to make a return of his income and the omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year, both being conditions precedent, the Sales Tax Officer had no occasion to invoke Section 18 of the Sales Tax Act. Mr. Kakodkar then cited the decision in Income-Tax Officer, I Ward, Distt. VI, Calcutta and Ors. v. Lakhmani Mewal Das, 1976 (103) I.T.R. 437. That case also arises out of the Income Tax Act. The learned counsel relied upon the following paragraph in that Judgment:--
"The grounds or reasons which lead to the formation of the belief contemplated by Section 147(a) of the Act must have a material bearing on the question of escapement of income of the asseasee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section."
On the basis of the authorities, the learned counsel for the petitioner contended that the reason stated in the notice is not a valid reason as laid down by the Supreme Court and, therefore, the notice lacks jurisdiction.
5. The learned Counsel further submits that a subsequent change of opinion of the authorities about the assessment already made will not also provide a ground to reopen the assessment, He submits that when the assessment is made and completed, without suppressing any material, and subsequently another Officer in his wisdom thought it necessary to reopen the assessment with the already available material, without unearthing any new materials, is not a ground to reopen the assessment. According to him, a reopening cannot be done ipse dixit of the Sales Officers, who occupy the Chair at the time of reopening the assessment after some time.
6. He also cited the decision in Indian and Eastern Newspaper Society v. Commissioner of Income-Tax, New Delhi, 1979 (119) I.T.R. 996 for the proposition that the opinion of an internal audit party of the income-tax department on a point of law cannot be regarded as 'information' within the meaning of Section 147(b) of the I. T. Act, 1961, for the purpose of reopening an assessment. Here in this case it is pleaded by the respondents that the audit party has pointed out the omission and, therefore, initiated action against the petitioner for reopening of the assessment. The learned counsel for the petitioner then relied upon the same decision wherein the Supreme Court observed that any different view taken by the Income-tax Officer afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. That is not permissible and that will not amount to "reason to believe" as occurring in Section 18 of the Sales Tax Act. He also relied upon the decision in Fatechand and Sons v. The Commercial Tax Officer, V Circle, Hyderabad, 1983 (54) S.T.C. 166 where it is held that the Commercial Tax Officer by. changing his opinion with regard to the nature of articles, could not thereafter hold that the exemption was wrongly granted. In short the contention of the learned counsel for the petitioner is that show cause notice Annexure P-5 is without any jurisdiction. He submits that eventhough the Department feels that the assessment order made was revisable on various reasons including an omission, it can be done by the Commissioner by exercising his suo motu power under Section 27 of the Act and not by way of show cause notice issued in this case.
7. Then Mr. Kakodkar, the counsel appearing for the petitioner has then switched over his argument to the merits of the case. He submits that the process that has been undergone by the meat as enumerated above will not change the character of goods. Therefore, it remains as meat. Therefore, it is entitled for exemption. He submits that the meat which the petitioner sold has not undergone any process of manufacture and, therefore, it is not exigible for tax. To fortify his submission he cited the decision in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers, 1980 (46) S.T.C. 63, where it has been held that when pineapple fruit is processed into pineapple slices for the purpose of being sold in sealed cans there is no consumption of the original pineapple fruit for the purpose of manufacture and the case does not fall within Section 5A(1)(a) of the Kerala General Sales Tax Act, 1963. Although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it on adding sugar to preserve it. He further relied upon the decision of the Supreme Court in Delhi Cold Storage P. Ltd. v. Commissioner of Income-Tax, 1991(191) I.T.R. 656, where the Supreme Court has held that in common parlance, "processing" is understood as an action which brings forth some change or alteration of the goods or material which is subjected to the act of processing. The dictionary meaning of the term is not very different from this meaning in one sense, while various other meanings of wider amplitude are also available. The view taken by the Allahabad and Calcutta High Courts did not find favour with the three-Judge Bench of the Supreme Court and, in clear terms, the judgment indicates that processing involves bringing into existence a different substance from what the material was at the commencement of the process. Therefore the learned counsel for the petitioner submits that on facts also the 'cold storage goods' remain to be the same commodity and does not change the character and therefore attracts the exemption of tax under Item No. 4 of the Second Schedule of the Sales Tax Act.
8. The learned Advocate General Mr. A. N. S. Nadkarni has raised a preliminary objection before us that the Writ Petition is one which is challenging a show cause notice, Annexure P-5, is not maintainable as laid down by the Supreme Court in various decisions being C.A. Abraham v. Income-Tax Officer, Kottayam and Anr., ; Thansingh Nathmal v. The Superintendent of Taxes, Dhubri and Ors., ; Champalal Binani v. The Commissioner of Income-Tax, West Bengal and Ors., and Assistant Collector of Central Excise, Chandan Nagar, West Bengal v. Dunlop India Ltd. and Ors., . In all these decisions the Supreme Court has deprecated the tendency of the Courts to grant interim orders and the clients to approach the High Courts under Article 226 when there is an efficacious and alternate remedy available. Here in this case, according to the Advocate General, the petitioner could very well show cause and even if it was aggrieved by the assessment order after showing cause, it could have filed an appeal and then a revision. Without availing those opportunities and rushing to the High Court is deprecable. We have no quarrel with the proposition advanced by the learned Advocate General. As we pointed out in the earlier part of the Judgment, since 1992 this Writ Petition was pending before this Court and this Court has granted stay. If we accept the argument of the learned Advocate General and dismiss the petition directing the petitioner to show cause and proceed with the matter as provided, in the Statute, we feel that we are doing a grave injustice to the petitioner as well as towards the State. We feel if we do so we are abdicating ourselves of our duties by throwing the Writ Petition on technical ground after keeping the matter over a period of time. Of course this matter could be disposed of on that technical plea by the High Court at the time of entertaining the petition; but having entertained the petition, granted stay and kept it dormant for 8 years, it is unfair to say to the party to go to the proper authority under the Statute. That will amount to gross miscarriage of justice. Therefore, we are constrained to overrule the objection raised by the learned Advocate General.
9. The learned Advocate General then proceeded to argue that there is no illegality or lack of jurisdiction in issuing notice under Section 18 of the Sales Tax Act. He points out that in the balance sheet while the petitioner filed its annual returns it is pointed out that the meat items which were sold were shown as 'cold storage products'. But then the Sales Tax Officer has ignored it and without further enquiry excluded such sales from tax assessment. Subsequently, when audit party points out, the Sales Tax Officer called for certain clarification by notice dated 17th September 1991 and on receipt of the clarification, the Sales Tax Officer being satisfied issued the notice in question. He contested the submission made on behalf of the petitioner that once the petitioner has disclosed the material and primary facts and on those facts a decision was taken and assessment has been completed, then, thereafter, on the same facts the decision cannot be re-opened under any circumstances. According to learned Advocate General, in this particular case the notice in question was issued not on the basis of the original or primary facts on which the assessment was already completed but on subsequent facts supplied by the petitioner, the Sales Tax Officer has chosen to re-open the assessment. The opposition raised by the counsel for the petitioner regarding the audit report is not also open to challenge because what has been observed by the Supreme Court is that an audit party cannot raise a question of law but an audit party can very well raise a question of fact on which definitely the Sales Tax Officer could re-open the assessment. We find considerable force in the argument. Decision of the Supreme Court in Indian and Eastern Newspaper Society v. Commissioner of Income-Tax, New Delhi, 1979 (119) I.T.R. 996, squarely answers the question raised in the Writ Petition. It clarifies all the doubts posed about scope of the 'information' by various High Courts. The Supreme Court in the Judgment observes thus :--
"But although an audit party does not possess the power to so pronounce on the law, it nevertheless may draw the attention of the ITO to it. Law is one thing, and its communication another. If the distinction between the source of the law and the communicator of the law is carefully maintained the confusion which often results in applying Section 147(b) may be avoided. While the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. No authority is required for the purpose. In the present case, an internal audit party of the income-tax department expressed the view that the receipts from the occupation of the conference hall and rooms did not attract Section 10 of the Act and that the assessment should have been made under Section 9. While Sections 9 and 10 can be described as law, the opinion of the audit party in regard to their application is not law. It is not a declaration by a body authorised to declare the law. That part alone of the note of an audit party which mentions the law which escaped the notice of the ITO constitutes "information" within the meaning of Section 147(b); the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account, by the ITO. In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. In short, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the ITO."
In this case the audit note contains the following remarks which are shown in Exhibit 2 filed along with the reply :--
"The details of cold storage products of Rs. 1650539.20 has not been brought on record. The audit could not verify assessment, whether these were canned food products. These may be verified and details shown to audit."
This note only alerted the Sales Tax Officer on certain facts, not on law, and on that basis Sales Tax Officer initiated proceedings. In our judgment we have no hesitation to hold that the said note can validly constitute an "information". On the basis of the note Sales Tax Officer proceeded to enquire into the matter and found that certain sales escaped from assessment. Therefore, we are of the opinion that the Sales Tax Officer can very well take in the objection raised by the audit party. Therefore the challenge made by the learned counsel for the petitioner that there is no circumstance warranting reopening of the assessment on the basis of the circumstance 'reason to believe' has not been specified in this case cannot be accepted. There are sufficient "reasons to believe" on the basis of the subsequent materials supplied by the petitioner itself and also on information given by the audit. On these two counts we have no hesitation to hold that the notice issued Annexure P-5 was well within the jurisdiction of the Sales Tax Officer. Challenge on account of lack of jurisdiction has to be repelled.
10. Then coming to the merits of the case. As we pointed out earlier what is exempted from sales tax is the entries of the Second Schedule. Entries 4 and 5 deal with 'meat' and 'fish' respectively. What is exempted from sales tax is meat directly taken from the butcher or fish directly purchased from the fish vendor, who offer the fish for sale in its natural form as is caught from the sea. The intention of the Legislature is very clear that those persons who indulge in selling meat or fish in its natural form cannot be fastened with the liability of payment of sales tax because it will affect the livelihood of the poor fisherman and/or butcher. And it also affects the Consumer, who is coming from low strata of society who does not use the meat and fish with any sophisticative taste. But when it is sold in sealed metallic or plastic containers, then the Legislature says that the meat and fish when supplied in a sophisticated manner will attract sales tax.
11. Moreover in this case we have seen that the "cold storage products" has been explained by the petitioner in detail as to under what process the meat has undergone. The meat is sold in the form of pork sausages, cocktail sausages, salami, luncheon meat, frankfurters, pastrami, croquettes, ham, bacon, sorpotel etc.. In consumer parlance also meat and fish are different from the goods sold by the petitioner. The simple and practical illustration is that if you want to purchase cocktail sausages or pork sausages and you demand 'meat' these materials will not be available. Therefore in common parlance meat and sausages are different and its manner and style of usage is also different. We, therefore, cannot agree with the submission made by the counsel for the petitioner that cocktail sausages, pork sausages, frankfurters, luncheon meat, salami, pastrami, croquettes, ham, bacon and other items as shown in the writ petition does not lose the character of meat and, therefore, those products are entitled for exemption cannot be accepted. The decisions cited by the learned counsel for the petitioner in the famous case of pineapple, poultry and rice in husk will not be of any use in the context of this case.
12. It is necessary now to point out that in the decisions of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam (supra) and Alladi Venkateswarlu and Ors. v. Government of Andhra Pmdesh and Anr., 1978 (41) S.T.C. 394 rendered by the Supreme Court and other High Courts the word 'manufacture' is defined as appearing in the dictionary. Respective Sales Act did not define the word. But in this case the word 'manufacture' is defined under Section 2(f) of the Sales Tax Act. It reads as follows -
"(f) 'manufacture' with all its grammatical variations and cognate expressions means any process of producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods (but does not include such manufactures or manufacturing processes as may be prescribed)."
In view of this extensive definition given to the word 'manufacture', the goods which are dealt with by the petitioner as stated by it in paragraph 2 of the petition definitely cannot be treated as meat so as to attract the exemption of tax. In this connection, learned Advocate General brought to our notice the decision in Rajasthan Roller Flour Mills Association and Anr. v. State of Rajasthan and Ors., where certain goods were consumed to bring into existence different goods -- different in commercial and common parlance - both of them must be treated as different goods. When wheat is consumed for producing flour or maida or suji, the commodities so obtained are different commodities from wheat. The wheat loses its identity and new goods and commodities emerge. Keeping in mind this principle the pork sausages and cocktail sausages and other items which are dealt with by the petitioner cannot be treated as meat. The argument of the counsel for the petitioner is that these items are sold in loose packets without seal. In other words the meat when it attracts tax must be sold in sealed packets. We do not agree to the technical meaning ascribed to the situation. Assuming for argument that the 'sausages' and other "cold storage goods" are supplied only in open plastic bag and not in sealed containers will not come under the ambit of 'meat'. The process admittedly carried out by the petitioner on meat will definitely come under "manufacture" as defined under the Act. As we pointed out earlier entirely different goods were sold by the petitioner and, therefore, they are not goods that are included in the Second Schedule. Therefore on merits also the petitioner is liable to pay tax on the goods it is dealing with and we find no illegality in issuing the notice Annexure P-5.
13. In the light of the above discussion, we find no merit in the writ petition and the writ petition fails and is dismissed. But in the circumstances, there is no order as to costs.
14. Writ petition dismissed