Punjab-Haryana High Court
Atul Glass Industries vs The State Of Haryana And Ors. on 3 December, 1970
Equivalent citations: [1971]28STC148(P&H)
ORDER Gurdev Singh, J.
1. The petitioner, Messrs Atul Glass Industries, Faridabad, has preferred two writ petitions (No. 2544 of 1966 and No. 2315 of 1967) for quashing the assessment order for the year 1961-62 passed by the Assessing Authority under the Punjab General Sales Tax Act and its subsequent order dated 4th September, 1967, relating to the assessment year 1962-63.
2. The petitioner-concern is carrying on manufacture of mirrors in its factory at Faridabad, now in the State of Haryana and formerly a part of the united Punjab as it existed before the reorganisation of the State on 1st November, 1966. The orders of the Assessing Authority passed under the General Sales Tax Act are assailed primarily on the ground of jurisdiction. It is asserted that the petitioner-concern is not carrying on any business of sale and purchase at Faridabad or anywhere in the State of Punjab or Haryana, but is engaged only in the manufacture of mirrors at Faridabad, while its administrative offices are situate in the Union Territory of Delhi at 69, Deshbandhu Gupta Road, New Delhi, and being a registered dealer in the Union Territory of Delhi under the Sales Tax Act of that State and under the Central Sales Tax Act, all taxes leviable are being assessed and paid by the petitioner in respect of its business in that territory.
3. The Assessing Authority proceeded to assess the petitioner to sales tax after recording a brief order, dated 3rd December, 1965, which is in these words:
None is present. The dealer is liable to pay tax from January, 1961, as an importer-manufacturer.
4. Despite the petitioner's objection, the assessment for that year was made by the Assessing Authority, Gurgaon, on 3rd December, 1965, when a demand for Rs. 17,000 was created against the petitioner. This included Rs. 1,000 assessed as penalty under Section 11(6) of the Punjab General Sales Tax Act. The petitioner took the matter to the Excise and Taxation Commissioner, Haryana, assailing the validity of the assessment on the plea inter alia that the Assessing Authority had no jurisdiction in the matter for reasons noted above and the order was bad as the date in the month of January, 1961, from which the liability was created had not been specified.
5. In the course of these proceedings, Mr. Bhagirath Dass, appearing for the petitioner, has urged:
(1) that the petitioner was not a dealer as defined in Section 2(d) of the Punjab General Sales Tax Act, 1948, within the State of Haryana or the State of Punjab as it existed prior to 1st November, 1966, and the mere finding of the Assessing Authority that the petitioner was an "importer-manufacturer" did not confer jurisdiction upon him to proceed with the assessment;
(2) that the exact date from which the liability was created in the month of January, 1961, having not been specified, the assessment made was null and void;
(3) that no assessment could be made without a specific finding that the petitioner was a "dealer" within the meaning of the Punjab General Sales Tax Act and under the Central Sales Tax Act, and that its business of sale and purchase of taxable goods conducted by it in the relevant year exceeded the taxable quantum;
(4) that no liability could be created against the petitioner for the year 1961-62 on the basis of the transaction that took place later in the year 1964-65 when admittedly there is no evidence of any transaction of purchase and sales pertaining to the relevant assessment year;
(5) that the nature of enquiries conducted behind the petitioner's back having not been disclosed, the impugned orders suffer from a legal infirmity as in the absence of such a disclosure the petitioner was handicapped in representing its case to the higher authorities while challenging the legality of the quantum of the assessment.
6. The town of Faridabad, which is at present in the State of Haryana, has a huge and growing industrial complex. There are quite a number of businesses that have their administrative offices at Delhi but have set up manufacturing units at Faridabad. The questions of law raised in these proceedings are thus of great importance to the business community and the State, and the decision would have a direct impact on the State revenue. In these circumstances especially when any order passed by me would be open to Letters Patent Appeal, I think that it is expedient that the points raised on behalf of the petitioner be authoritatively settled by a larger Bench . I accordingly, direct that the papers be placed before my Lord the Chief Justice for necessary oders.
In Pursuance of the above said order of reference, the petition came on for hearing before the Division Bench consisting of R.S. NARULA and C.G. SURI, JJ. and the learned Judges delivered the following judgment on 17th September, 1970.
JUDGMENT Narula, J.
7. Messrs Atul Glass Industries, Faridabad, a partnership concern, has impugned the order of assessment of sales tax in respect of the year 1961-62 (annexure 'A') and the appellate order upholding the same (annexure 'B') on the main ground that the assessment has been made under the Punjab General Sales Tax Act, 1948 (hereinafter called the Punjab Act) and under the Central Sales Tax Act, 1956 (hereinafter referred to as the Central Act) without the authority having arrived at any legal and valid finding about the petitioner-firm having been a "dealer" of Faridabad within the meaning of that expression as defined in the two Acts. Reference to the other infirmities in the impugned orders on account of which those orders are sought to be quashed in this petition under Articles 226 and 227 of the Constitution shall be made at the appropriate places.
8. The petitioner-firm established its concern for the manufacture of mirrors, etc., at Faridabad in December, 1960. It admittedly maintains its administrative office at 69, Deshbandhu Gupta Road, New Delhi, and sales office at Fatehpuri, Delhi. The petitioner is a registered dealer in the Union Territory of Delhi under the sales tax law applicable to that territory as well as under the Central Act. It is not disputed that the petitioner was duly assessed to the State tax and the Central tax at Delhi in respect of the year in dispute. By an order dated 3rd March, 1965, the Assessing Authority, Faridabad, issued a notice to the petitioner in the prescribed form S.T. 14 for the production of its books. When B.R. Duggal, the managing partner of the petitioner-firm appeared before the Assessing Authority on 8th April, 1965, after a few adjournments, he stated that no sale had been effected by the petitioner-firm from Faridabad. The Assessing Authority passed an order adjourning the case to 21st April, 1965, in the following terms:--
Shri B.R. Duggal partner is present. States that no sale was effected from Faridabad. Directed to file any affidavit, produce accounts to substantiate. Case adjourned to 21st April, 1965.
9. The order passed on the adjourned hearing was in the following words:--
Shri B.R. Duggal is present along with Shri M.K. Arora, Advocate. Accounts partly examined and adjourned to 3rd May, 1965, at 11 A.M. for further scrutiny.
10. From the order passed by the Assessing Authority on 3rd May, 1965, in the following language, it is clear that Mr. Duggal's statement was recorded and Mr. Duggal filed a list of transfers showing that the goods manufactured at Faridabad had been transferred to Delhi:--
Shri B.R. Duggal partner is present along with Shri M.K. Arora, Advocate. Statement on S.A. recorded. List of transfers for Delhi submitted. Case is adjourned sine die for enquiries.
11. Ex parte and secret enquiries were thereafter made by the sales tax authorities. It is the common case of both sides that neither the petitioner was associated with those enquiries nor the information collected during those enquiries nor even the result of the enquiries was made known to the petitioner. It is further admitted on both sides that mention about the result of those enquiries was, for the first time, made in the impugned order of the Assessing Authority and no hint about the information gathered during those enquiries was ever given to the petitioner before that. The order of the Assessing Authority shows that as a result of those private ex parte enquiries alone, he was convinced that the petitioner had been effecting sales from Faridabad itself, and, therefore, the Assessing Authority started issuing notices to the petitioner to produce its books of account in order to make a proper and fair assessment of the tax to be levied on it. It is not disputed by Mr. Dewan that the sole object of sending notices to the petitioner after the private departmental enquiries was to fix the quantum of tax by invoking the machinery provision relating to assessment proceedings and no further information was sought from the petitioner for deciding the basic jurisdictional question, the petitioner being or not being a dealer of Faridabad. Whatever may be the reason for not complying with the several notices issued to the petitioner for that purpose, the fact remains that the books of accounts were not produced till the last date fixed for the purpose, which was 3rd December, 1965, on which date request for adjournment of the case was refused and the impugned order of assessment on best judgment basis was passed. In the absence of production of books of account, the departmental authorities were handicapped in determining the quantum of gross turnover, the only object for which the books were then being sent for. On best judgment basis, therefore, the turnover was determined to be Rs. 13 lakhs out of which inter-State sales were valued at Rs. 11 lakhs. Sales tax under the Punjab Act amounting to Rs. 10,000 was, therefore, levied on the sales worth Rs. 2 lakhs within the State of Punjab and a penalty of Rs. 250 was added to the amount on account of non-registration of the petitioner-firm. In addition to the liability of Rs. 10,250 created under the Punjab Act, the petitioner was also held liable to pay Rs. 77,000 on account of tax under the Central Act on sales worth Rs. 11 lakhs and another Rs. 1,000 on account of penalty. A total liability of Rs. 88,250 was created against the petitioner by the order dated 3rd December, 1965 (annexure 'A').
12. In the appeal preferred by the petitioner against the order of the Assessing Authority, the first point urged on behalf of the petitioner was that no order fixing liability to pay the tax had been recorded at all by the Assessing Authority. At that stage, the departmental representative showed to the petitioner an order passed by the Assessing Authority on 3rd December, 1965, on the departmental file to the following effect :--
None is present. The dealer is liable to pay tax from January, 1961, as an importer-manufacturer.
13. Though the genuineness and validity of the above-quoted order had been assailed in paragraph 5 of the writ petition on the ground that it occurred below the brief order of assessment, the argument based on that particular juxtaposition of the two orders on the departmental file was not pressed before us at the hearing of the writ petition by Mr. Bhagirath Dass in view of the fair attitude taken up by Mr. C.D. Dewan. The argument advanced on behalf of the petitioner to the effect that its being an importer-manufacturer at Faridabad did not make it a "dealer" for the purposes of the two Acts as a manufacturer-importer need not be engaged in the business of sale of its goods at that very place, was repelled by the Appellate Authority on the ground that the order fixing liability has to be read in this case along with the impugned order of assessment (annexure 'A') as both the orders were framed on the same day and the order fixing liability just preceded the order of assessment. It was for the issuance of a writ in the nature of certiorari to quash the orders of the Assessing Authority and the Appellate Authority (annexures 'A', 'B' and 'B-1') that this petition was filed on 3rd December, 1966, in the circumstances detailed above.
14. The writ petition has been contested on behalf of the respondents, who are (i) the State of Haryana, (ii) the Excise and Taxation Commissioner, Haryana, and (iii) the Assessing Authority, Gurgaon. In the written statement dated 3rd February, 1967, filed by the Excise and Taxation Commissioner of Haryana, substantial parts of the impugned order of the Assessing Authority have been copied almost verbatim to justify the passing of that order. The correctness of the orders passed in the assessment proceedings on 8th April, 21st April and 3rd May, 1965, as reproduced in paragraph 5 of the writ petition has not been disputed. It has, however, been stated that the petitioner did not produce any books of accounts to corroborate the statement that no sale had been effected from Faridabad. Reliance for the finding that the petitioner was a dealer of Faridabad during 1961-62 has been placed on evidence of certain sales effected from Faridabad during July, 1964. It has been claimed that the petitioner was a dealer under Section 2(b) of the Central Act and Section 2(d) of the Punjab Act, inasmuch as the petitioner had been importing raw material in Faridabad for use in manufacturing or processing of its products and such products were actually put to sale. It was claimed that the petitioner had correctly been found to be an importer-manufacturer, and, therefore, the taxable quantum in respect of the petitioner, according to Section 4(5)(a) of the Punjab Act, for determining its liability was "nil". On that basis, it has been stated that as soon as the first sale was effected, the gross turnover of the petitioner exceeded the fixed taxable quantum of "nil" and its liability to assessment arose immediately.
15. In reply to the written statement, Mr. B.R. Duggal of the petitioner-firm filed further affidavit dated 22nd November, 1967. In paragraph 3 of that further affidavit it was specifically deposed that when the enquiries were made after the adjournment of the assessment proceedings on 3rd May, 1965, the result of those enquiries had not been disclosed to the petitioner and the Assessing Authority had, while making the best judgment assessment, relied upon those private enquiries. It has been further added that the mere fact that the petitioner was a manufacturing concern at Faridabad or was a manufacturer-importer, did not make it a "dealer" within the meaning of the two Acts.
16. When this petition came up for hearing and was partly heard by Gurdev Singh, J., his Lordship was pleased to direct that the case be referred to a larger Bench in view of the fact that the questions of law raised in this case are of great importance to the business community of the State of Haryana and the decision on the points raised in this petition would have a direct impact on the State revenue and any order passed by his Lordship sitting in Single Bench would be subject to a Letters Patent Appeal as of right. That is how this case has been referred to us for disposal.
17. Section 2(d) of the Punjab Act runs as follows:
2. (d) 'dealer' means any person including a Department of Government who in the normal course of trade sells or purchases any goods that are actually delivered for the purpose of consumption in the State of Punjab, irrespective of the fact that the main place of business of such person is outside the said State and where the main place of business of any such person is not in the said State, 'dealer' includes the local manager or agent of such person in Punjab in respect of such business.
18. "Sale" under that Act means any transfer of property in goods for valuable consideration. The tax is leviable on the annual gross turnover of the dealer. The proceeds of any sale made outside the State by a dealer who carries on business, both inside and outside the State, is not included in the turnover of the dealer. "Import" in the Punjab Act means the bringing of goods into the State from any place outside its limits. A dealer who was carrying on business in question for at least a year or more preceding the commencement of the Punjab Act is liable to pay tax under that Act if his gross turnover in the year immediately preceding the commencement of the Act exceeded the taxable quantum. The petitioner was admittedly not such a dealer as is referred to in Section 4(1) of the Punjab Act as the petitioner commenced production in its factory at Faridabad in December, 1960, about 12 years after the coming into force of that Act. Sub-section (2) of Section 4, however, provides that a person who was not carrying on business before the commencement of the Act shall be liable to pay tax under the Punjab Act on the expiry of 30 days after the date on which his gross turnover during any year first exceeds the taxable quantum. Proviso to Sub-section (2) of Section 4 states that liability to pay tax in respect of a dealer who imports any goods for use in manufacturing or processing goods for sale, shall commence with effect from the date on which his gross turnover during any year first exceeds the taxable quantum. "Taxable quantum" is defined in Sub-section (5) of Section 4. It is for this purpose that the question of the petitioner being or not being importer-manufacturer becomes relevant. Clause (a) of Sub-section (5) of Section 4 of the Punjab Act states :
(5) In this Act the expression 'taxable quantum' means--
(a) in relation to any dealer who imports for sale or use in manufacturing or processing any goods in Punjab, Nil.
19. I have referred to the definition of "taxable quantum" and the provision relating to importer-manufacturer in order to show that in the case of the petitioner who was indisputably an importer-manufacturer in Punjab in 1961-62, the taxable quantum was nil and, therefore, if it carried on the business of sale of the goods manufactured by it within the State of Punjab during the relevant year, there would be no question of embarking upon an enquiry into the matter of its having or not having exceeded the taxable quantum for purposes of attracting the levy of the tax under the Punjab Act.
20. Now coming to the provisions of the Central Act, Section 2(b) of that Act states:
2. (b) 'dealer' means any person who carries on the business of buying and selling goods, and includes a Government which carries on such business.
21. Tax is leviable under Section 6 of the Central Act (which is the charging Section in that Act) only on sales effected by a "dealer" "in the course of inter-State trade or commerce during any year". When a sale or purchase of goods is said to take place in the course of inter-State trade or commerce is provided for in Section 3 of the Central Act in the following terms:
A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase--
(a) occasions the movement of goods from one State to another;
(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.
22. At the hearing of this petition, Mr. Bhagirath Dass pressed before us only the following points :
(i) The burden of proving that a particular assessee was carrying on the business of buying or selling as a regular activity during the financial year in question and was, therefore, a dealer in that year within the meaning of Section 2(b) of the Central Act or Section 2(d) of the Punjab Act, was on the sales tax authorities, which burden they have failed to discharge in this case :
(a) because the mere fact that an assessee manufactures goods out of the material imported by him into the State does not make him a dealer within the meaning of either the Punjab Act or the Central Act; and the respondents have not gone beyond that point and have recorded any finding about the petitioner having, in fact, been a dealer at Faridabad during 1961-62;
(b) because each year of assessment is a separate unit and the question of levy of sales tax in respect of each year has to be decided on the facts and circumstances and figures relating to that particular year, the department could not lawfully base its finding relating to the year 1961-62 on the facts alleged to have been discovered by it relating to 1964-65, and
(ii) Even if it could be permissible to read the order of the Assessing Authority (annexure 'A') into the purported order of the authority passed on the same day so as to derive from a joint reading of the two orders an implied finding about the, petitioner having been a dealer during the year in question, the finding is vitiated on account of its having been substantially based on the result of alleged private enquiries made by the department after the adjournment of the case sine die on 3rd May, 1965, as neither the petitioner was associated with those enquiries nor the facts alleged to have been discovered during those enquiries were ever communicated to the petitioner to enable the petitioner to repel or rebut the same or to show their irrelevance. The impugned orders of the Assessing Authority on which the best judgment assessment (on account of non-production of books of accounts) has been based are, therefore, liable to be set aside as having been passed in violation of the principles of natural justice.
23. In support of his first contention Mr. Bhagirath Dass referred to my judgment in Associated Hotels of India Ltd. v. The Excise and Taxation Officer, Simla and Anr. [1966] 17 S.T.C. 555 (which judgment was later upheld by the Division Bench and also by their Lordships of the Supreme Court) and to the judgments of the Supreme Court in The Government of Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 S.T.C. 240 (S.C.) in V. K.M. Abdulsalam Rowther v. State of Kerala and Anr. [1961] 12 S.T.C. 98, in Deputy Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Travancore Rubber and Tea Co. [1967] 20 S.T.C. 520 (S.C.) and in Deputy Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Midland Rubber and Produce Co. Ltd. [1970] 25 S.T.C. 57 (S.C.) and submitted that the onus of proof always lies upon the taxing authority to show that there was a taxable sale and that such onus is not discharged by merely showing that property in goods which belonged to a party performing the services or executing the contract stands transferred to the other party. He further submitted that if the taxing authorities do not make any investigation and come to the conclusion merely because of the frequency and volume of the sale, the inference of the department cannot be sustained. He laid particular emphasis on the observation of the Supreme Court in the case of Travancore Rubber and Tea Co.4 to the effect that merely making an assessment on the determination of the turnover of the assessee without discussing the question whether the assessee was a "dealer" or not, within the meaning of the Central Act, could not be sustained. Mr. C.D. Dewan, learned Additional Advocate-General for the State of Haryana, who appeared before us on behalf of the respondents, did not question the correctness of the proposition relating to the burden of proof (of the essential prerequisite of being a "dealer" under the Acts) being on the department and about the necessity of recording a proper finding to that effect in every case in which the claim of the department in that respect is disputed.
24. Learned counsel for the petitioner then referred in detail to the respective definitions of "dealer" in the two Acts and emphasised on the basis of the pronouncements of the Supreme Court in Commissioner of Sales Tax, U.P. v. D.C. Dhimani & Brothers Ltd. [1970] 25 S.T.C. 12 (S.C.), State of Madras v. K.C.P. Ltd. A.I.R. 1969 S.C. 348 and State of Gujarat v. Raipur Manufacturing Co. Ltd. A.I.R. 1967 S.C. 1066, that from the impugned orders (annexures 'A', 'B' and 'B-1') it is impossible to spell out a definite finding that the petitioner was a "dealer" within the meaning of the Punjab Act so as to be liable to compulsory registration in Punjab in respect of the year in dispute. In the case of D.C. Dhimani, it was held that in order to be a "dealer" it had to be shown that not only was the assessee selling goods in the State but that it was carrying on the business of selling goods in that particular State and if this was not shown, the assessee could not be held to be a "dealer" within the meaning of the Central Act. In the case of Raipur Manufacturing Co. Ltd. A.I.R. 1967 S.C. 1066 it was observed by the Supreme Court that to be a "dealer" a person must carry on the business of selling those particular goods, price whereof is said to be included in his turnover. It was further held that in disposing of old and discarded items such as stores, machinery, iron scrap, cans, boxes and such other miscellaneous goods, the company was not carrying on the business of selling those items of goods and, therefore, the sale proceeds of such surplus unserviceable discarded goods cannot be included in the turnover of the dealer. Similarly, in the case of K.C.P. Ltd. A.I.R. 169 S.C. 348 the order of the sales tax authority including the amount of Rs. 4,20,000 received by the company on account of sale proceeds of unsuitable furnaces in the turnover of the company, was struck down on the ground that it represented an isolated sale of its fixed capital assets and did not constitute a transaction of the business of the company. It was held that where a person in the course of carrying on the business was required to dispose of what might be called fixed assets or discarded goods, acquired in the course of the business, an inference that he desired to carry on the business of selling his fixed assets or discarded goods would not ordinarily arise. Reference was also made by the counsel in this connection to the judgment of Grover, J. (with which the other four learned Judges of the Constitution Bench of the Supreme Court agreed) in Tata Engineering & Locomotive Co. Ltd. v. The Assistant Commissioner of Commercial Taxes and Anr., A.I.R. 1970 S.C. 1281 At the suggestion of the assessee, the department examined one specimen transaction alone and held in that case that other transactions were presumed to be of similar nature. The Supreme Court struck down that order and held that this was a wholly wrong procedure to follow and the Assistant Commissioner of Sales Tax on whom the duty lay of assessing tax in accordance with law, was bound to examine each individual transaction and then decide whether it constituted an inter-State sale exigible to tax under the provisions of the Central Act or not. It is unnecessary to dilate on this subject for the simple reason that the petitioner was admittedly carrying on the business of manufacture of mirrors, etc. in Faridabad (in the then existing State of Punjab) during the year 1961-62 on an extensive scale and the only ground on which it is sought to be held that the petitioner was not a dealer within the meaning of the sales tax law during that financial year is that the petitioner did not effect sales in the normal course of its business activity from Faridabad but used to transfer all its products to its sales office in Delhi from where the goods used to be sold and at which place the petitioner was registered as a "dealer" and has been assessed to the Delhi sales tax as well as Central sales tax by the Delhi authorities.
25. In view of the authoritative decision of the Supreme Court in Sir Kikabhai Premchand v. Commissioner of Income-tax (Central), Bombay [1953] 24 I.T.R. 506 (S.C.) and in Tata Engineering & Locomotive Co. Ltd. v. The Assistant Commissioner of Commercial Taxes and Anr. A.I.R. [1970] S.C. 1281, the learned Additional Advocate-General did not contest the submission of Mr. Bhagirath Dass to the effect that each assessment year is a self-contained accounting period and the Assessing Authority can only take into consideration sales effected in that particular year and the authorities are not concerned with sales which may be made in any other year. In this connection, the judgment of the Division Bench of the Kerala High Court (M.A. Ansari, C.J., and M. Madhavan Nair, J.) in v. K.M. Abdulsalam Rowther v. State of Kerala and Anr. [1961] 12 S.T.C. 98 may also be noticed. That case related to sales tax. It was held that sales tax being payable on the turnover of a fixed period, such unit should be self-contained for that purpose, and whatever happens before or after the assessment year would be excluded for assessing the liability. For arriving at the finding of fact about sales having been effected by the petitioner from Faridabad during 1961-62, the only evidence on which reliance was placed by the Assessing Authority consisted of instances of sales made from Faridabad in or about July, 1964, as ascertained by the department in its private enquiries. Relying on the judgments and observations of the Supreme Court and the Kerala High Court, I would hold that wholly irrelevant material has been considered by the Assessing Authority for arriving at the crucial finding. The whole decision of the Assessing Authority in this respect stands manifestly vitiated. The impugned order of the Assessing Authority does not refer to any material collected even in private ex parte enquiry, about any sale having been effected by the petitioner from Faridabad at any time during 1961-62. The decision is based on transactions of 1964 and is, therefore, not sustainable.
26. The petitioner is on a still more firm ground regarding its grievance about the material collected in the ex parte private enquiry having been used by the Assessing Authority for recording a finding against it without informing the petitioner of that material before passing the impugned orders. On the facts relevant for this proposition, there is no dispute. Even the learned Additional Advocate-General very fairly and frankly stated that the Assessing Authority did not have any material other than that collected at the ex parte private enquiries for holding that the petitioner had been carrying on the business of sale from Faridabad during the relevant year and admitted that the said material was never divulged to the petitioner before passing the impugned order of assessment. In the face of the authoritative judgment of their Lordships of the Supreme Court in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, West Bengal [1954] 26 I.T.R. 775 (S.C.) and Raghubar Mandal Harihar Mandal v. State of Bihar A.I.R. 1957 S.C. 810, Mr. Dewan stated that he could not support the impugned orders which had to be set aside on this short ground and merely prayed that while quashing those orders, we should give a direction to the Assessing Authority to apprise the petitioner of those materials and to give an opportunity to the petitioner to rebut and repel the same and then to proceed to record a finding whether the petitioner was or was not a dealer at Faridabad in the relevant year. In the case of Dhakeswari Cotton Mills Ltd., , it was held by Mahajan, C.J., (with whom S.R. Das, Ghulam Hasan, Bhagwati and Venkatarama Ayyar, JJ., agreed) that where it was found that in arriving at an estimate of gross profit rate, the Income-tax Officer and the Tribunal had violated certain fundamental rules of natural justice by not disclosing to the assessee what information had been supplied to them by the departmental representative and by not giving any opportunity to the company to rebut the material furnished to them, the assessee did not have a fair hearing and the order of the Assessing Authority was liable to be set aside. In Raghubar Mandal etc., it was held by the Supreme Court that there must be something more than bare suspicion to support an order of assessment.
27. In the view I have taken of the very basis of the assessment regarding the finding of the petitioner having been a "dealer" at Faridabad during the relevant year, it is not necessary to go into the further arguments of Mr. Bhagirath Dass to the effect that even the order of assessment on best judgment basis is invalid on the authority of the judgment of the Andhra Pradesh High Court in Dewan Hanuman Manmohan v. The State of Andhra Pradesh [1960] 11 S.T.C. 473 because the assessment order does not contain any indication of the material on which the supposed figure of turnover has been fixed.
28. For the foregoing reasons I would allow this petition with costs and set aside and quash the orders of the Assessing Authority and of the Appellate Authority upholding the same (annexures 'A', 'B' and 'B-1') but observe at the same time that nothing stated in this judgment would stand in the way of the Assessing Authorities to reopen the matter in respect of the year in question if they are otherwise entitled to do so and if there is no legal bar to such course being adopted by them. Counsel's fee Rs. 250.
Suri, J.
29. I regret my inability to agree with my Lord, Narula, J. This dissenting note may however be read in continuation of my Lord's judgment.
30. There is no dispute with regard to the legal principles so well brought out by my Lord by reference to the provisions of the statute and a large number of decided cases but the question still remains how far these legal principles would have a bearing upon or be applicable to the facts of any particular case. In none of these cited cases were the courts dealing with an assessee like the petitioner who was breathing defiance of the authority of the Taxing Officer and repeatedly spurning the process issued to him from time to time in accordance with law. The basic controversy in this case revolves around a simple question of fact and I would like to throw better light on certain aspects of the case.
31. Even at the risk of earning the censure which respondent No. 2 has earned by reproducing in the return certain portions of the impugned order (annexure 'A') of respondent No. 3, I feel that facts have the unfortunate habit of not changing very often and that a restatement of facts would involve a certain amount of repetition. A verbatim quotation would however have this advantage that one cannot be blamed for having changed, for better or worse, a statement of facts as made by the party himself. The petitioners had started their partnership business as a firm under the name and style of Messrs Atul Glass Industries at Faridabad for the manufacture of decorative and figured glasses and mirrors in December, 1960, but had failed to register as required by law, for a number of years until they were detected for suspected evasion of sales tax in 1965. In this connection, the Assessing Authority at Gurgaon, respondent No. 3, had observed in its impugned order as follows:
The manufacturing and sale unit at Faridabad was established in 1960. Enquiries made at the spot and the business market revealed that although this dealer made sales from Faridabad on a large scale and supplied goods manufactured by it to its customers both inside as well as outside the State of Punjab yet it neither secured registration under the Punjab General Sales Tax Act, 1948, nor under Section 7 of the Central Sales Tax Act, 1956, in Punjab in spite of the fact that the dealer was liable to pay tax under the Acts.
32. A notice in form S.T. 14 was issued to the petitioners by respondent No. 3 on 6th March, 1965, for appearance on 8th March, 1965. It was mentioned in this notice that respondent No. 3 felt satisfied from certain information in his possession that the petitioners were liable to pay tax under the Punjab Act in respect of the assessment year 1961-62 and that they had wilfully failed to apply for registration under Section 7 of the said Act and that it was necessary to make an assessment under Section 11(6) for the mentioned period and period subsequent thereto. The notice was duly served on the petitioner-firm but there was a request for adjournment. The case was adjourned as requested to 15th March, 1965, but nobody appeared and a fresh notice had to be issued for 24th March, 1965. On the said date there was another request in writing for an adjournment which was granted again by respondent No. 3. On the adjourned hearing, namely 8th April, 1965, Shri Duggal a partner of the petitioner-firm appeared and contended that no sales were effected by them from Faridabad. He was directed to file an affidavit and to produce his account books on 21st April, 1965. On this date Shri Duggal appeared with a counsel and some accounts were partly examined. As further scrutiny of the accounts was necessary the case was adjourned to 3rd May, 1965, when Shri Duggal made a statement and submitted a list of transfers of consignments to Delhi. At this stage the Assessing Authority adjourned the case sine die for making independent enquiries. Concrete information which may appear to demolish the contention put forth on 8th April, 1965, by Shri Duggal, a partner of the petitioner-firm, was forthcoming at this independent inquiry. The nature of this information is indicated by a portion of the impugned order recorded by respondent No. 3, which runs as follows:
The examination of record of transport companies revealed that the goods are supplied directly to their customers inside as well as outside the State. Although the goods receipt shows that the goods are consigned to "self" yet these are endorsed by a slip to the customers to whom the goods are delivered directly by the assessee who discloses himself either as Atul Glass Industries or as Indo Auto Glass Industries. For instance M/s. Atul Glass Industries, Delhi, actually booked from Faridabad 38 cases of glass sheets to Indian Picture House, Ahmedabad, vide G.R. No. 460906 dated 20th July, 1964, by truck No. RJL-2794. The freight of Rs. 722 was paid by the customer at Ahmedabad on receipt of the goods. As the difference from Delhi and Faridabad is negligible the transporters normally charge freight from Delhi but actually the goods are booked, loaded and despatched from Faridabad.
Similarly the assessee supplied 7 cases of glass sheets plain to M/s. S.G. Traders, P-23/24 Rader Bazar Street, Calcutta, vide Factory packing memo. Nos. 839/1 to 839/7. These goods have been supplied under the name and style of M/s. Indo Auto Glass Industries, vide G.R. No. 460930 dated 30th July, 1964. The freight of Rs. 163.90 is paid by the customer on receipt of the goods. The reference pertains to inter-State transactions from Faridabad. Similarly, the assessee supplied goods within the State of Punjab vide G.R. Nos. 460707, 460708 and 460709 to Hoshiarpur, Patiala and Amritsar respectively. There is no question of movement of these goods to the head office as normally claimed by the assessee as transfer of goods to head office. The goods were supplied direct to the customer from Faridabad.
33. On having ascertained the nature of the assessee's business, respondent No. 3 started sending notices to the petitioners. The use of the word "ascertain" does not necessarily imply that the authority had come to a firm finding with regard to the nature of the assessee's business or that any explanation furnished by the assessee with regard to the information appearing against him would have been disregarded. All that the word indicates is that prima facie evidence had appeared which satisfied respondent No. 3 that the petitioners were carrying on the business of selling and supplying goods to their customers direct from Faridabad. Respondent No. 3 was pleased to describe the petitioners' contention that the sales were effected from Delhi and not from Faridabad and Punjab as a farce. It appeared evident to respondent No. 3 that the petitioners had been avoiding the payment of tax on sales to customers within and beyond the boundaries of the State. The matter did not however stand concluded by the information gathered at the independent enquiries made by the department as is apparent from the fact that respondent No. 3 started issuing notices to the petitioners after these independent enquiries. An office memo. dated 7th September, 1965, was sent to the petitioners for appearance on 13th September, 1965. As nobody appeared the case was adjourned at the petitioners' request to 23rd October, 1965. The request for adjournment was repeated again and the case was adjourned a second time to 3rd December, 1965. There was a repetition of the same request for adjournment a third time and respondent No. 3 therefore proceeded to record the impugned order (annexure 'A') the same day.
34. I have not been referred to any provision of statute or any ruling of court which may say that all the information gathered at the independent enquiry conducted by the department had to be set out in detail in the notice sent to the assessee. The assessee was being called upon to produce his books and other records for the assessment years 1960-61 and 1961-62 and there is no reason to believe that what had been ascertained against the assessee would not have been divulged to him if he had appeared before the Assessing Authority on the dates intimated in the process issued in accordance with law or that the assessee's explanation with regard to the material appearing against him in the independent enquiries conducted by the department would have been ignored or disregarded while making the assessment.
35. It does not. appear to be the petitioners' case that they were ready and willing to produce their books and records in compliance with the process issued by respondent No. 3 or that the three opportunities granted to them by responent No. 3 after the independent enquiries were insufficient. If that had been so, the petitioners could have offered to produce these books and records before respondent No. 2 while their appeal was being heard. The impugned order (annexure 'B') recorded by respondent No. 2 does not refer to any such willingness on the part of the petitioners to produce their books and records even at that stage.
36. Even without the string of rulings that have been cited there was no chance of our taking the view that the onus of proving the assessee's liability was not on the taxing authority. Onus can, however, be discharged in a number of ways and presumptions of law or inferences to be drawn from certain circumstances can tilt the balance and shift the burden on the other party. Concrete evidence was forthcoming from the records of the office of a transport company at Faridabad that the petitioners had booked about half a dozen consignments of their finished goods at Faridabad for their customers at various destinations within and beyond the boundaries of the State. Even though the goods were despatched direct from Faridabad the freight was made payable ex-New Delhi to the station of destination. Even though the goods received were made out in favour of "self" the delivery of the goods was taken by customers at these stations of destination and the freight charges were also paid by these customers. The Assessing Authority cannot be blamed for having used rather a strong word when dealing with the petitioners' contention that no sales were being made by them from Faridabad. This information had put the authorities on the scent of the tax evasion that had been going on for some time. It had been shown that during the short span of a month or so as many as six consignments had been sent direct from Faridabad to stations within and without the State. There is nothing to indicate that old records of the goods transport companies at Faridabad were available to gather similar information in respect of earlier consignments. The main source of the necessary information was the books and records of the petitioner-company which were being withheld for obvious reasons. The elementary principles enunciated in Section 114 of the Indian Evidence Act may, under the circumstances, be a better guide as to the inferences to be drawn from the withholding of such books than any number of decided cases which do not deal with identical facts. It is true that the information gathered in respect of the year 1964 was no indication that the same thing had been going on during the earlier years but that does not mean that we cannot draw the inferences permissible under the law from the contrary behaviour of the petitioners or their failure to get themselves registered with the sales tax authorities for a number of years after they had started their manufacturing business at Faridabad. There was no question of the petitioners having remained within any taxable quantum because in the case of sales made by a manufacturer the taxable quantum was nil and the very first sale made by them from Faridabad would have justified their assessment under the Punjab Act.
37. Again there is no dispute with the legal proposition that each assessment year is a separate self-contained accounting period. In spite of the fact that the information forthcoming at the enquiries made independently by the department was in respect of 1964-65, the petitioners were being called upon to produce their books and records for the assessment years 1960-61 and 1961-62. If the best judgment assessment was made necessary it was because of the petitioners' failure to produce their books and records in spite of about half a dozen opportunities having been given them to do so. A best judgment assessment would necessarily be based on surmises or inferences but the petitioners had the means to rebut or displace those inferences by producing the best material available which was in their possession. The petitioners' contention that no sales were being made from Faridabad at any time was found to be false and it was the information received in respect of the year 1964 which put the authorities on the scent that similar tax evasion could have been going on during the previous years. If this surmise was not justified simply on the material forthcoming in respect of the year 1964, the surmise developed into an inference or presumption which could legally be drawn from the petitioners' conduct that tax evasion had in fact been going on during the previous years and that this was a fit case for making a best judgment assessment.
38. Shri Bhagirath Dass has cited Commissioner of Sales Tax, U.P. v. D.C. Dhimani & Brothers Ltd. [1970] 25 S.T.C. 12 (S.C.), State of Madras v. K.C.P. Ltd. A.I.R. 1969 S.C. 348, State of Gujarat v. Raipur Manufacturing Co. Ltd. A.I.R. 1967 S.C. 1066 and Tata Engineering & Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes and Anr. A.I.R. 1970 S.C. 1281, in support of his contention that from a few stray transactions it was not possible to spell out the definite finding that the petitioner-firm was a dealer within the meaning of the Punjab Act so as to be liable to compulsory registration or assessment in Punjab in respect of the year in dispute. In our case the information gathered from the office of only one of the numerous transport companies operating at Faridabad was that within the short span of about a month or so the petitioners had booked from Faridabad as many as 5 or 6 consignments of their manufactured products to customers within and without the State. There is nothing to indicate that these sales were of by-products or of old or discarded items of packing material or capital goods or that these sales were not made in the regular course of the business of the company. The best evidence available on the point was in the possession of the assessee and was being withheld by it. There was therefore no other course left open to the respondents than to make a best judgment assessment which had necessarily to be based on inferences which the law fully entitles the respondents to draw from the petitioners' conduct.
39. No rules of natural justice may appear to have been violated and it cannot be said that the petitioners were denied an opportunity to explain the information that had been collected against them in the independent enquiries conducted by the department. Ample opportunity had been given to the petitioners to appear before the respondents after that information had been gathered by the department and the respondents cannot be held to blame if that opportunity remained unavailed of by the petitioners. The information collected during the local enquiry had been set out in the order recorded by the Assessing Authority in the petitioners' absence on a date for which the petitioners had been summoned and there is no reason to believe that this information would have been kept a secret from them if the summonses had been answered. If the learned Additional Advocate-General, Shri Dewan, made some concessions after he had addressed arguments on all other aspects of the case, it was only to save the situation and to see that the respondents' right to make the assessment for the year 1961-62 did not stand foreclosed altogether. In the case of an assessee like the petitioner one can never be sure the books and records would be found today in the same state in which they had been prepared 9 or 10 years ago.
40. I find that the petitioners' wayward and defiant conduct during the assessment proceedings disentitles them to any relief in the exercise of our writ jurisdiction.
41. The writ petition should therefore be dismissed with costs.
Order of the court
42. In view of the difference of opinion between us, the case will now be decided in accordance with the procedure referred to in Clause 26 of the Letters Patent. We, therefore, direct that the case may now be heard by a third Judge to be nominated by the learned Chief Justice for that purpose.
43. In pursuance of the above-said order, the petition came on for hearing before Harbans Singh, C.J., and the following judgment was delivered on 3rd December, 1970.
JUDGMENT Harbans Singh, C.J.
44. This is a writ petition filed by M/s. Atul Glass Industries, Faridabad, challenging the assessment made on the 3rd of December, 1965, by the Assessing Authority of Gurgaon in Haryana State under the Punjab General Sales Tax Act, 1948, and the Central Sales Tax Act, 1956, in respect of the assessment year 1961-62, by which the assessee-petitioner was assessed to a tax of Rs. 10,000 plus a penalty of Rs. 250 under the Punjab General Sales Tax Act, 1948, and to a tax of Rs. 77,000 and a penalty of Rs. 1,000 under the Central Sales Tax Act, 1956. This petition came up for hearing before a Bench, but in view of the difference of opinion between the two learned Judges, the matter has been placed before me under Clause 26 of the Letters Patent.
45. The petitioner-firm (hereinafter referred to as "the assessee") was established in December, 1960, and started manufacturing mirrors at its factory at Faridabad, having its registered and sales office at Delhi. On 3rd of March, 1965, notice in form S.T. 14, for the assessment year 1961-62 was issued to the assessee for 8th of March, 1965. After a number of adjournments and after partly examining the accounts of the assessee, the matter was adjourned on 3rd of May, 1965, sine die for enquiry. Thereafter the assessee was called on a number of hearings, which he did not attend for causes into which I need not go, and finally, on the 3rd of December, 1965, the impugned order of assessment was passed. The points taken up on behalf of the assessee inter alia were--(1) that the assessee can be assessed to sales tax by the Assessing Authority at Gurgaon only if the assessee is proved to be a "dealer" at Faridabad within the meaning of Section 2(d) of the Punjab General Sales Tax Act, or Section 2(b) of the Central Sales Tax Act; (2) that the burden of proving that the assessee did fall within the definition of "dealer", as stated above, for the assessment year 1961-62, was on the department; (3) that each assessment year has to be dealt with independently; and (4) that in view of the fact that :each assessment year is to be dealt with separately, the mere fact that in some subsequent year the assessee had entered into some transaction of sale, which would bring him within the definition of "dealer", would not be sufficient to hold him a dealer for the assessment year 1961-62, and the Assessing Authority must necessarily give a definite finding on some material available for that assessment year that he was a dealer; and as in the present case the Assessing Authority on the basis of some instances relating to the year 1964 held that the assessee was a dealer even in the year 1961-62, the assessment was bad.
46. Both the learned Judges came to the conclusion that before the assessee could be assessed to tax under the above-mentioned two Acts, he had to be proved a "dealer" within the meaning of Section 2(d) and Section 2(b) of the two Acts respectively. It was further not disputed that the burden lay on the department to show that the assessee was a dealer. It was also not contested that each assessment year has to be treated independently. Narula, J., who found for the assessee, held that the material available to the department in respect of the dealings of the assessee in the year 1964 could not be utilised for coming to a finding that the assessee was a dealer in the year 1961-62. Suri, J., however, felt that from the dealings of the assessee for the subsequent years inference could be drawn even qua the earlier year, but no authority was cited for such a proposition, and the learned Counsel for the department appearing before me has not tried to support the finding given by Suri, J. Another point taken on behalf of the assessee was that private enquiries were made behind the back of the assessee and the same were not disclosed, and so the assessee had no opportunity to be heard with regard to the material thus collected. On this point also Narula, J., found for the assessee, while Suri, J., was of the view that a number of opportunities were given to the assessee but he failed to avail of the same and, therefore, the order of assessment could not be held to be bad for lack of opportunity to the assessee. In fact this is the main ground of difference between the two learned Judges. I am, however, of the view that it is not necessary to go into this question for the simple reason that this writ petition must succeed on the short point that there was no material whatever available with the Assessing Authority to come to the conclusion that the assessee was a dealer during the assessment year 1961-62 with which year alone the Assessing Authority was concerned. It is, therefore, not necessary for me to give in detail the provisions of the two Acts and the definition of the expression "dealer". Narula, J., has gone into the whole matter in great detail and cited authorities for the various propositions accepted by him. Before me it is not disputed that before an assessee can be held to be a dealer, two things are necessary : first, that the assessee must buy or sell goods, and, secondly, this must be done in the course of his business. The mere fact that the assessee, in the present case, did enter into some transaction of sale of the goods manufactured by him in the year 1964 is not sufficient for coming to the conclusion that he must have sold those manufactured goods also three years earlier, that is, during the year 1961-62. The learned Counsel for the department appearing before me did not contest this proposition. This alone is sufficient for the disposal of this writ petition.
47. Admittedly the burden was on the department to show that the assessee was a dealer. Again admittedly there was no material whatever collected by the department even during the ex parte private enquiries made by it that the assessee sold any of his manufactured goods or the material, that was imported by him during the course of his business, in the year 1961-62. That being the case, there was no jurisdiction with the Assessing Authority to assess the assessee to any sales tax under either of the two enactments, for that year.
48. For the reasons given above, therefore, I agree with Narula, J., that this petition must be accepted and the impugned order of assessment quashed. I order accordingly. The assessee will have his costs from the respondents.