Karnataka High Court
Kesoram Rayon vs Commissioner Of Commercial Taxes, ... on 29 March, 1989
Equivalent citations: 1989(2)KARLJ322, [1989]75STC13(KAR)
JUDGMENT M. Rama Jois, J.
1. These writ petitions have been referred, at the stage of preliminary hearing, to Division Bench under section 9 of the Karnataka High Court Act, 1961. The following question of law arises for consideration :
Whether, under section 12A of the Karnataka Sales Tax Act, 1957 ("Act" for short), the assessing authority has the power to make a reassessment, if after making an assessment, it finds that the assessment of tax on the turnover of any item of goods had been made at a rate lower than the rate at which that particular turnover was assessable to tax under the Act ?
2. The facts, in brief, are as follows : (i) In W.P. No. 1235 of 1986 : The assessee in this case is a dealer registered under the provisions of the Act. The period of assessment concerned is 1st April, 1982 to 31st March, 1983. The Assistant Commissioner of Commercial Taxes (Assessment-I), Bangalore-9, was the assessing authority. Out of the gross turnover of the assessee during the relevant period, the turnover relating to sales of rayon yarn was to the tune of Rs. 1,87,29,328. In the assessment order, the authority levied tax at the rate of 3 per cent. The order of assessment was dated 22nd August, 1985. Within four months thereafter, namely, on 19th December, 1985, the assessing authority issued a notice under section 12A of the Act to the petitioner. The contents of that notice read :
"Notice under section 12A of the Karnataka Sales Tax Act, 1957.
(Period : 1st April, 1982 to 31st March, 1983) Please take notice that the assessment for the period from 1st April, 1982 to 31st March, 1983 in respect of your company had been concluded vide order dated 22nd August, 1985. In the said assessment order you have been assessed under the Karnataka Sales Tax Act, 1957 on turnovers as detailed below :
Gross turnover Rs. 4,33,64,297.67
Exempted turnover Rs. 1,57,70,195.69
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Taxable turnover Rs. 2,75,94,101.88
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Out of the taxable turnover determined, a turnover amounting to Rs. 1,87,29,328 had been assessed to tax at 3 per cent classifying the same as sales of rayon yarn and a tax amount of Rs. 5,61,879.85 had been levied. Tax at 3 per cent was levied wrongly on rayon yarn as falling under entry 24 of the Second Schedule to the Karnataka Sales Tax Act, 1957, which envisages 'all kinds of mill yarn excluding cotton yarn, spun silk yarn and filature silk'.
2. With effect from 1st April, 1982 vide Act 13 of 1982, entry 147 had been introduced and the entry reads as under :
Rate of tax 'All kinds of man-made or synthetic staple fibres 6 per cent.' or fibres or filament yarn.
3. Rayon yarn dealt with and sold by you during the year 1982-83, is a synthetic fibre answering the description of man-made or synthetic staple fibres and hence falls squarely under this entry. It is, therefore, evident that a turnover amounting to Rs. 1,87,29,328 relating to sales of rayon yarn had been assessed at a rate lower than the rate at which it is assessable under the Act, in view of the fact that it should have been subjected to tax at 6 per cent for the reasons mentioned above.
4. By virtue of powers vested in me under section 12A of the Karnataka Sales Tax Act, 1957, it is now proposed to reassess this part of the turnover amounting to Rs. 1,87,29,328 at 6 per cent treating the same as an item falling under entry 147 of the Second Schedule to the Karnataka Sales Tax Act, 1957. The proposed turnovers to be reassessed are as under :
Gross turnover Rs. 4,33,64,297.67
Exempted turnover Rs. 1,57,70,195.69
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Taxable turnover Rs. 2,75,94,101.88
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Classification
Sale of rayon }
yarn under } Rs. 1,87,29,328 at 6 per cent Rs. 11,23,759.70
entry 147 of the }
Second Schedule. }
Sale of kesophane }
film (cellulose) } Rs. 88,64,773.88 at 7 per cent Rs. 6,20,534.15
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Rs. 17,44,293.85
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Total Rs. 17,44,293.85
S.C. at 10 per cent Rs. 1,74,429.38
T.O.T. at 5 per cent Rs. 1,37,970.50
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Grand total Rs. 20,56,693.73
Less tax already
assessed Rs. 14,38,625.90
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Balance now
determined Rs. 6,18,067.83
Please show cause why the turnovers proposed as above should not be assessed under section 12A of the Act ............."
As can be seen from the above notice, the assessing authority issued the notice on his finding that the "synthetic fibre" was included at entry 147 of the Second Schedule to the Act by the amending Act 13 of 1982, which had come into force with effect from 1st April, 1982 and according to that entry in respect of synthetic yarn the prescribed rate of tax was six per cent. Overlooking the said provision the authority had taxed the turnover of rayon which is undisputedly a synthetic fibre, at 3 per cent under the impression that it fell within entry 24 of the Second Schedule to the Act which read "all kinds of mill yarn excluding cotton yarn, spun silk yarn" though actually it could not fall within that entry. Therefore, he proposed, under the notice, to reassess that part of the turnover of rayon and to tax the said turnover at 6 per cent under entry 147 of the Second Schedule. Questioning the jurisdiction of the assessing authority to initiate action under section 12A of the Act, the petitioner has come up with this writ petition.
(ii) In W.P. Nos. 3342 and 3343 of 1987 : In these cases also on similar grounds the assessing authority issued show cause notice proposing to make reassessment as similar mistake had been committed, that is, instead of taxing the turnover of rayon at the rate of 6 per cent under entry 147 of the Second Schedule, the said turnover had been taxed at 3 per cent under entry 24 of the Second Schedule. After the petitioners replied to the show cause notices, the orders under section 12A of the Act were made in all the petitions. The legality of the said orders have been challenged in these two petitions.
3. Shri Raghavan, learned counsel for the petitioners, contended that section 12A of the Act anthorised the assessing authority to make a reassessment only in a case in which the turnover of the assessee concerned had escaped assessment and, as in these cases, the entire turnover relating to rayon was before the assessing authority, the assessing authority had no jurisdiction to invoke the provisions of section 12A of the Act. In support of his contention the learned counsel relied on the following decisions :
(1) [1971] 28 STC 98 (Mys) (G. K. Chikanarasimhiah v. Assistant Commissioner of Commercial Taxes).
(2) [1971] 28 STC 144 (Mys) (Karnataka Trading Co. v. Commercial Tax Officer).
(3) [1971] 28 STC 147 (Mys) (Balaji Trading Company v. State of Mysore).
(4) [1974] 33 STC 430 (Orissa) (State of Orissa v. Sri Rama Electrical Stores, Rayagada).
(5) [1985] 58 STC 65 (Kar) (Bidar Sahakar Sakkare Karkhane Ltd. v. State of Karnataka).
(6) (Deputy Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Dhanalakshmi Vilas Cashew Co.).
4. Before considering the authorities, it is necessary in the first instance to analyse the provisions of section 12A of the Act, as in force from 1st April, 1983. For the purpose of convenience we set out the provisions in convenient parts, as under :
"(1) If the assessing authority has reason to believe that the whole or any part of the turnover of a dealer in respect of any period
(i) has escaped assessment to tax; or
(ii) has been under-assessed; or
(iii) has been assessed at a rate lower than the rate at which it is assessable under this Act; or
(iv) any deductions or exemptions have been wrongly allowed in respect thereof, the assessing authority may, notwithstanding the fact that the whole or part of such escaped turnover was already before the said authority at the time of the original assessment or reassessment but subject to the provisions of sub-section (2), at any time within a period of five years from the expiry of the year to which the tax relates, proceed to assess or reassess to the best of its judgment, the tax payable by the dealer in respect of such turnover after issuing a notice to the dealer and after making such enquiry as it may consider necessary."
As can be seen from the language of section 12A, under four circumstances the assessing authority is given the power to make a reassessment. They are : first, when there was escapement of the whole or any part of the turnover; secondly, when a dealer has been under-assessed; thirdly, when there was assessment at a rate lower than the rate at which a dealer is liable to be assessed under the provisions of the Act and, fourthly, when deductions or exemptions have been wrongly allowed in respect of such turnover. Under any one of the four circumstances the assessing authority has the power under section 12A to initiate action. No doubt the heading of the section gives an impression that the power conferred under the section is only in respect of escaped turnover, but a careful analysis of the section would show that the power of reassessment conferred under that provision is not only in respect of escaped turnover but also under three other circumstances. This position is placed beyond doubt by the non obstante clause "notwithstanding the fact that the whole or part of such escaped turnover was already before the said authority at the time of the original assessment or reassessment". The particular circumstance invoked by the assessing authority in these cases is that though the entire turnover of the assessees relating to rayon was available at the time of making the order of assessment, the assessing authority committed a mistake regarding the rate of tax, in that instead of levying the tax on rayon at 6 per cent under entry 147 of the Second Schedule which had been incorporated by an amendment to the Act with effect from 1st April, 1982, it had proceeded to levy the tax at 3 per cent on the basis that the turnover related to the goods mentioned at item 24 of the Second Schedule. It is on that basis, the show cause notices were issued. In one of the writ petitions the show cause notice itself is under challenge; while in other two writ petitions the orders of the assessing officer made after issuing show cause notice are under challenge.
5. In our opinion, language of section 12A, of the Act is clear and unambiguous. It confers power on the assessing authority to make a reassessment even in cases where the entire turnover was before the assessing authority, but it had committed a mistake in the matter of rate of tax in that a lower rate of tax than the one at which the tax ought to have been levied had been levied. Therefore, the question set out first has to be answered in the affirmative and against the petitioners.
6. The learned counsel for the petitioners however maintained that such a view would be contrary to the view taken in the decisions of this Court on which he relied. Therefore we proceed to consider those decisions.
7. The first decision on which the learned counsel for the petitioners relied is that of Chikanarasimhiah v. Assistant Commissioner of Commercial Taxes [1971] 28 STC 98 (Mys). In the said case the facts were as follows : The turnover of the assessee therein was in respect of dhaniya or coriander. That turnover had not been assessed on the ground that coriander was an "oil-seed". Subsequently, an expert opinion was received to the effect that coriander was not an oil-seed. On the basis of that opinion notice under section 12A was issued. The validity of that notice was challenged before this Court. The contention of the assessee therein, which is found at page 101 of the report, was that section 12A conferred power to make a reassessment in respect of escaped turnover and the said section could not be invoked for assessing the turnover of coriander which was already before the assessing authority and which had been exempted under the assessment order, on the ground it was oil-seed. Old section 12A of the Act as inserted into the Act by Act 9 of 1970 and as it stood up to 1st April, 1983, was the section under which the notice impugned in that case was issued. The heading of the section was the same namely "Assessment of escaped turnover". The wording of old section 12A(1) was as follows :
"Where for any reason the whole or any part of the turnover of a dealer has escaped assessment to tax or licence fee, or has been assessed at a lower rate than the rate at which it is assessable, the assessing authority may, subject to the provisions of sub-section (2) at any time within a period of five years from the expiry of the year to which the tax or licence fee relates, proceed to assess to the best of its judgment, the tax or licence fee payable on the turnover referred to, after issuing notice to the dealer and after making such enquiry as it considers necessary."
8. The power under the section, having due regard to its wording could be invoked not only in respect of escaped turnover but also in respect of turnover disclosed at the time of assessment but had been for any reason assessed at a lower rate of tax than prescribed. In the said case it was contended for the assessee that section 12A gave power to make reassessment only in respect of escaped turnover and as in that case the figures regarding the turnover of coriander was available on record, but was not taxed, section 12A could not be invoked. This contention was accepted and the court held that section 12A notice was without authority of law. In that case the attention of the court was not drawn to the second part of section 12A which empowered the authority to make reassessment also in cases in which the figures regarding turnover of any article was available but had been taxed at a lower rate and, therefore, the court did not consider that aspect, namely, as the turnover of coriander which was taxable under the Act had not been taxed under a wrong impression that it was oil-seed, could be brought to tax by invoking the power under second part of section 12A. The three other decisions were rendered following the decision in Chikanarasimhiah's case [1971] 28 STC 98 (Mys).
9. As far as the decision in Bidar Sahakar Sakkare Karkhane Ltd. v. State [1985] 58 STC 65 (Kar) is concerned, the question for consideration before this Court was in the case of escaped turnover, reassessment could be made under section 12A of the Act or the revisional power under section 21 of the Act was exercisable. Learned counsel for the petitioners pointed out that in the said case again a Division Bench of this Court ruled that section 12A conferred power to make a reassessment only in a case where the turnover of a dealer had escaped assessment and under no other circumstances and therefore the revisional power under section 21 only could be exercisable. As can be seen from the above decision also only the first part of section 12A which conferred power on the assessing authority for making reassessment relating to escaped turnover had been extracted and interpreted. The fact that section 12A also conferred power on the authority to make reassessment in cases in which any particular turnover was taxed at a rate lower than the prescribed rate was neither pointed out to the court nor dealt with in the said decision. In the decision of the Supreme Court in Dhanalakshmi Vilas Cashew Company's case [1969] 24 STC 491 the provisions interpreted were section 15(1)(i) of the Kerala General Sales Tax Act and rule 33 of the Kerala General Sales Tax Rules. The Supreme Court held that rule 33 of the Kerala General Sales Tax Rules conferred power to make a reassessment only in cases where the turnover of a dealer had escaped assessment and that power of revision under section 15 of that Act was exercisable when the order of assessment is found otherwise to be erroneous. Rule 33 of the Kerala General Sales Tax Rules reads :
"(1) If for any reason the whole or any part of the turnover of business of a dealer or licensee has escaped assessment to tax in any year or if the licence fee has escaped levy in any year, the assessing authority or licensing authority as the case may be, subject to the provisions of sub-rule (2) may at any time within three years next succeeding that to which the tax or licence fee relates determine to the best of his judgment the turnover which has escaped assessment and assess the tax payable or levy the licence fee in such turnover after issuing a notice to the dealer or licensee and after making such enquiry as he considers necessary."
A comparison of the provisions of rule 33 of the Kerala General Sales Tax Rules and section 12A of the Act would at once indicate that the power conferred under rule 33 of those Rules was to make a reassessment only in cases where the turnover of a dealer concerned had escaped assessment which corresponds to one of the powers conferred under section 12A of the Act, that is, first part of the section. Rule 33 of the Kerala Rules did not confer any specific power to make a reassessment when the assessing authority after making an assessment found that the rate of tax levied was lower than what should have been levied under the provisions of the Act. Therefore, the decision of the Supreme Court is also of no assistance to the petitioners in these cases.
10. On the other hand, there is a decision of the Andhra Pradesh High Court reported in State of Andhra Pradesh v. Polireddi Satyanarayana [1972] 29 STC 512 in which section 14(4) of the Andhra Pradesh General Sales Tax Act, 1957, which is in pari materia with section 12A of the Act has been interpreted. The question for consideration in that case was also whether under the said provision the assessing authority had the power to revise assessment on the ground that the rate at which the tax should have been levied had not been levied and tax had been levied at a lower rate. The view taken by the Sales Tax Tribunal of Andhra Pradesh was that in such circumstances only the revisional authority should exercise the power. That was found to be erroneous by their Lordships of the Andhra Pradesh High Court who held that in a circumstance where the assessing authority found that rate of tax levied was lower than the rate at which the tax ought to have been levied, it had the power to make reassessment under section 14(4) of the Andhra Pradesh Act. We are in respectful agreement with the analysis of the section and the view taken by the Andhra Pradesh High Court. We are of the view that in the decisions of this Court on which the learned counsel relied, the precise question, namely, whether the authority which had committed a patent error in the matter of rate of tax in the assessment order could rectify the assessment order in exercise of power under section 12A of the Act, did not arise for consideration. However, it should be pointed out that the matter is placed beyond controversy by new section 12A which was substituted by Act 10 of 1983 with effect from 1st April, 1983 which unlike the old section 12A contains a non obstante clause, namely, "notwithstanding the fact that the whole or any part of such escaped turnover was already before the said authority at the time of the original assessment or reassessment". Obviously this clause was introduced to place the matter beyond doubt. It is the new section 12A which is applicable and invoked in these cases. For these reasons we answer the question set out first as follows :
Under section 12A of the Karnataka Sales Tax Act, 1957, the assessing authority has the power to make a reassessment, if after making an assessment, it finds that the assessment of tax on the turnover of any item of goods had been made at a rate lower than the rate at which that particular turnover was assessable to tax under the aforesaid Act.
11. The learned counsel for the petitioners, lastly, contended that even conceding that section 12A conferred power on the assessing authority to make an order of reassessment after finding that rate of tax levied was lower than the tax at which it ought to have been levied, the power could not have been invoked in these cases for the reason that the authority had actually classified the rayon yarn as goods falling under entry 24 and was attempting to change the classification itself by saying that it fell under entry 147. This contention, in our opinion, is also patently untenable. As can be seen from the assessment order the assessing authority has clearly stated that the turnover which is the subject-matter of assessment as well as reassessment was rayon yarn. There is no reference to rayon yarn in entry 24 of the Second Schedule whereas synthetic fibre is expressly referred in entry 147 of that Schedule and it is not disputed that rayon is synthetic fibre. Subsequently when the authority found that it had committed a mistake in the matter of rate it initiated action under section 12A of the Act, for which it was perfectly within its power.
12. In the result, we find no substance in these petitions.
13. The petitions are dismissed with costs.
14. Consolidated advocate's fee Rs. 2,000.
15. Petitions dismissed.