Gujarat High Court
State Of Gujarat vs Avani Underwear Co. on 15 January, 1993
Author: M.B. Shah
Bench: M.B. Shah
JUDGMENT M.B. Shah, J.
1. In these references the following question is referred under section 69 of the Gujarat Sales Tax Act, 1969, for decision :
"Whether, on the facts and in the circumstances of the case, the Tribunal was not justified in law in upholding the contention of the opponents that section 55 of the Gujarat Sales Tax Act, 1969, read with rule 49 of the Gujarat Sales Tax Rules, 1970, contemplates reasons to be given while disposing of an application for remission of tax ?"
2. The aforesaid question arises for decision because the applications filed by the opponents under section 55(2) of the Sales Tax Act for grant of remission of sales tax payable by them are rejected by the Commissioner of Sales Tax without recording any reasons.
3. The opponents of these references are sister partnership firms registered under the Indian Partnership Act. It is their say that the opponents are carrying on business of manufacturing and selling hosiery articles under the trade name "Nitex". On December 10, 1982, at night time there was accidental fire which affected the entire industrial estate; the opponents suffered huge loss of property; their account books, their stock, furniture, machinery etc., were destroyed in the fire; on December 16, 1982, the opponent filed applications under section 55 of the Sales Tax Act for granting exemption from payment of sales tax at least for a period of one year and in the alternative to grant a tangible remission or relief from payment of the sales tax. In support of those applications the opponents relied upon the report submitted by the Chief Officer of the Fire Brigade, the statements recorded by the police officer and their not having received the claims from the Insurance Company to the extent of loss sustained by them. The opponents further submitted an additional application on January 30, 1983. Those applications were rejected by the Sales Tax Commissioner, Gujarat State, by his order dated December 17, 1984, by only stating that the case of the opponents was not such that remission could be granted.
4. Against the orders passed by the Sales Tax Commissioner, the opponents preferred Appeal Nos. 10/85 to 24/85 before the Gujarat Sales Tax Tribunal. At the time of hearing of appeals, preliminary contention was raised to the effect that the appeal against the order passed by the Sales Tax Commissioner under section 55 of the Sales Tax Act was not maintainable. The Tribunal arrived at the conclusion that the order passed by the Sales Tax Commissioner was appealable under section 65. For this purpose the Tribunal referred to the provision of section 65 which provides that an appeal from every original order, not being an order mentioned in section 66, passed under the Act or the Rules shall lie. Section 66 specifically provides as to the orders against which appeal would not lie. In that section there was no provision that no appeal would lie against the order passed under section 55. At this stage, we may note that by the Gujarat Act 10 of 1992 clause (5) is added to section 66 which provides that against an order of remission of tax, penalty or interest under section 55 no appeal and no application for revision shall lie. But it is an undisputed fact that at the relevant time there was no such provision. The Tribunal, therefore, rejected the preliminary objection. The Tribunal further held that as the order passed by the Sales Tax Commissioner was without giving any reasons, it was required to be set aside. Hence, the Tribunal remanded the matters to the Sales Tax Commissioner for reconsideration and for fresh disposal. Against that order the State of Gujarat preferred an application for making reference to the High Court under section 69 of the Sales Tax Act and the Tribunal has referred the aforesaid question for determination.
5. For determining the aforesaid question, it would be necessary first to refer to section 55 of the Sales Tax Act and rule 49 of the Gujarat Sales tax Rules, 1970, which are as under :
"55. Remission of taxes. - (1) Subject to such conditions as it may impose the State Government may, if it is necessary so to do in the public interest or to grant concession in case of double taxation or to redress an inequitable situation, remit by an order either generally or specially, the whole or any part of the taxes payable in respect of any period by any dealer or a class of dealers or of any specified class of sales or specified sales or purchases.
(2) The Commissioner may, in such circumstances and subject to such conditions and limit as may be prescribed, remit the whole or any part of the tax payable, in respect of any period, by any dealer."
"Rule 49. Remission of tax in cases of loss due to calamities, etc. - (1) Subject to the provisions of sub-rule (2), the Commissioner may remit the whole or any part of the tax payable in respect of any period by a registered dealer if such registered dealer has suffered financially on account of riot or any natural calamity.
(2) No remission of tax shall be made under this rule -
(a) except on an application made in that behalf to the Commissioner by the registered dealer setting forth,
(i) the details regarding the riot or as the case may be, the natural calamity,
(ii) the exact amount of loss sustained by him,
(iii) the extent of relief prayed for and the reasons therefor, and
(iv) the details regarding realisation of any claim prepared under any insurance or receipt of any grant-in-aid.
(b) if the loss has been substantially mitigated by the realisation of any claim preferred under any insurance or on receipt of any grant-in-aid.
(3) The Commissioner may for sufficient reasons, remit the whole or any part of the tax payable in respect of any period by any dealer, in such circumstances which the Commissioner may consider appropriate.
(4) If the amount to be remitted under this rule, exceeds ten thousand rupees the remission of the excess shall not be made without the previous sanction of the State Government."
6. Considering the provisions of section 55 read with rule 49, in our view, the Sales Tax Commissioner was required to assign reasons before rejecting the application under section 55(2) mainly because -
(i) reading section 55(2) with rule 49, it can be stated that reasons are required to be recorded before rejecting the application;
(ii) the order under section 55(2) is appealable one;
(iii) the Sales Tax Commissioner is exercising quasi-judicial functions while deciding the application under section 55(2) of the Sales Tax Act;
(iv) it prevents miscarriage of justice, minimise chances of arbitrariness and it would be in conformity with the principles of natural justice when the Sales Tax Commissioner is exercising his statutory function of deciding the application under section 55(2) of the Act.
7. Reasons are required to be stated on the basis of section 55(2) read with rule 49 :
In these references we are concerned with sub-section (2) of section 55. It empowers the Commissioner to remit the whole or any part of the tax payable in respect of any period by a registered dealer. This power can be exercised in such circumstances and subject to such conditions and limit as prescribed under rule 49 of the Rules. Sub-rule (1) of rule 49 specifically provides that the Commissioner is empowered to remit the whole or any part of the tax payable in respect of any period by a registered dealer if such registered dealer has suffered financially on account of riot of natural calamity. This would mean that if a registered dealer has suffered a financial loss on account of two objective criteria, viz., riot or natural calamity, then the Commissioner has to exercise his discretionary power and remit the tax. Remission may be whole or in part depending upon the circumstances of the case. Therefore, for rejecting the application under section 55 the Commissioner has to arrive at the decision that the registered dealer has not suffered financial loss on account of riot or natural calamity. For arriving at such a conclusion his order must be based on some reasons, that is to say, that the dealer has not suffered financial loss because of riot or natural calamity and that the say of the dealer is required to be rejected for some reasons.
8. Further, sub-rule (2) of rule 49 also indicates that before rejecting the application the Commissioner must give reasons for rejecting it. Sub-clause (i) of clause (a) of sub-rule (2) specifically provides that in an application which is filed by the registered dealer the details regarding the riot or as the case may be, the natural calamity should be stated. Sub-clause (ii) further provides that the exact amount of loss sustained by the registered dealer is also required to be stated. Sub-clause (iii) further provides that the registered dealer must state the extent of relief prayed for and the reasons therefor. This would indicate that even in the application which is filed by the registered dealer, he must give reasons in support of the relief claimed by him. Hence for deciding the application which is submitted by the registered dealer, the Commissioner is required to apply his mind to the reasons stated in support of the relief prayed for by the dealer. This would also indicate that the Commissioner must record reasons before rejecting the application of the dealer, i.e., he must at least state why the reasons submitted in support of the application by the dealer are not accepted by him. Further, sub-rule (3) of rule 49 in terms provides that the Commissioner has to record reasons for remitting the whole or any part of the tax payable in respect of any period by any dealer. From this sub-rule (3) it is apparent that the Commissioner has to give sufficient reasons for remitting the whole or any part of the tax payable. In a case where there is prayer for remitting the whole of the tax payable but that prayer is rejected in part and remission is given only for the part of the tax payable, there also he has to give reasons why only remission of tax is given in part. Necessarily it would mean that for rejecting the application as a whole, he must give sufficient reasons. Not only this, sub-rule (4) further provides that if the amount which is to be remitted exceeds ten thousand rupees, the remission of the excess shall not be made without the previous sanction of the State Government. For obtaining the previous sanction of the State Government, the Commissioner is required to submit his report with reasons otherwise it would be difficult for the State Government to arrive at the decision whether sanction to grant remission should be given or not. Hence, in our view, it is apparent that before rejecting the application under sub-section (2) of section 55 read with rule 49 filed by the registered dealer the Sales Tax Commissioner was required to give reasons in support of it.
9. Appealable order :
Further, in our view, the Tribunal rightly arrived at the conclusion that the order passed under section 55(2) was an appealable order. Section 65 in terms provides that an appeal from every original order, not being an order mentioned in section 66 passed under the Sales Tax Act or the Rules made thereunder shall lie before the appellate authority mentioned in clauses (a) to (c) of sub-section (1) of section 65. Section 66 provides as to the orders against which no appeal and no application for revision is maintainable. That section nowhere provided that the order passed under section 55 was not appealable. We make it clear that this was the position up to April 7, 1992, i.e., till section 66 was amended. By the amendment clause (5) to section 66 is added. It provides that against an order of remission of tax, penalty or interest under section 55 no appeal and no application for revision shall lie. We are not required to consider what is the effect of this clause in these references, but at the relevant time the order passed under section 55(2) was appealable. Hence the Commissioner was required to assign reasons before rejecting the application so that the aggrieved party acquires the knowledge of the reasons for not accepting his case and it also can demonstrate before the appellate authority that the reason assigned by the authority in rejecting his application were erroneous, irrational, irrelevant or arbitrary.
10. Quasi-judicial orders :
Apart from this specific provision, it is clear that the Sales Tax Commissioner was exercising quasi-judicial power under section 55 of the Act. It is well-settled law that where an authority makes an order in exercise of a quasi-judicial function, it must record its reasons in support of the order it makes. Every quasi-judicial order must be supported by reasons (reference may be made to a decision in the case of Woolcombers of India Ltd. v. Woolcombers Workers' Union AIR 1973 SC 2758, Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India AIR 1976 SC 1785, and Mukherjee v. Union of India AIR 1990 SC 1984).
11. Reasons are required to be stated even with regard to administrative orders which affect the rights of the parties :
Further, admittedly rejection of an application under section 55(2) would affect the right of the applicant to get remission of sales tax payable by him for a particular period during which he has suffered loss because of riot or natural calamity. Even with regard to administrative orders which affect the rights of the parties, the principles of natural justice also require that the authority should record reasons before deciding the rights of the parties unless the orders passed by certain specified authorities are excluded from the ambit of principles of natural justice or such exclusion can be implied from the natural of the subject-matter, the scheme and the provisions of the enactment. In the case of Mukherjee v. Union of India AIR 1990 SC 1984, the Supreme Court dealt with this aspect in detail while dealing with sections 162, 164 of the Army Act, 1950 and the Rules made thereunder. After considering the various decisions, the court observed that an important consideration which has weighed with the court for holding that an administrative authority exercising quasi-judicial functions must record the reasons for its decision, is that such a decision is subject to the appellate jurisdiction of the Supreme Court under article 136 of the Constitution as well as the supervisory jurisdiction of the High Courts under article 227 of the Constitution and that the reasons, if recorded, would enable the court to effectively exercise the appellate or supervisory power. The court further observed that the other considerations which have also weighed with the court in taking this view are that the requirement of recording reasons would (i) guarantee consideration by the authority; (ii) introduce clarity in the decisions; and (iii) minimise chances of arbitrariness in decision-making. The court has further observed that the requirement that reasons to be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact whether the decision is subject to appeal, revision or judicial review on the ground that it would exclude the chances of arbitrariness and ensure a degree of fairness in the process of decision-making. The court has further observed in paragraphs 38 and 39 as under :
"38. The object underlying the rules of natural justice 'is to prevent miscarriage of justice' and secure 'fair play in action'. As pointed out earlier the requirement about recording of reasons for its decision by an administrative authority exercising quasi-judicial functions achieves this object by excluding chances of arbitrariness and ensuring a degree of fairness in the process of decision-making. Keeping in view the expanding horizon of the principles of natural justice, we are of the opinion, that the requirement to record reason can be regarded as one of the principles of natural justice which govern exercise of power by administrative authorities. The rules of natural justice are not embodied rules. The extent of their application depends upon the particular statutory framework whereunder jurisdiction has been conferred on the administrative authority. With regard to the exercise of a particular power by an administrative authority including exercise of judicial or quasi-judicial functions the Legislature, while conferring the said power, may feel that it would not be in the larger public interest that the reasons for the order passed by the administrative authority be recorded in the order and be communicated to the aggrieved party and it may dispense with such a requirement. It may do so by making an express provision to that effect as those contained in the Administrative Procedure Act, 1946 of U.S.A. and the Administrative Decisions (Judicial Review) Act, 1977 of Australia whereby the orders passed by certain specified authorities are excluded from the ambit of the enactment. Such an exclusion can also arise by necessary implication from the nature of the subject-matter, the scheme and the provisions of the enactment. The public interest underlying such a provision would outweigh the salutary purpose served by the requirement to record the reasons. The said requirement cannot, therefore, be insisted upon in such a case.
39. For the reasons aforesaid, if must be concluded that except in cases where the requirement has been dispensed with expressly or by necessary implication, an administrative authority exercising judicial or quasi-judicial functions is required to record the reasons for its decision."
12. In view of this settled legal position, the Tribunal was justified in upholding the contention of the opponents that section 55 of the Gujarat Sales Tax Act read with rule 49 of the Gujarat Sales Tax Rules contemplates reasons to be given while disposing of an application for remission of tax.
13. In the result, the question under reference is answered in the negative i.e., against the Revenue and in favour of the assessees with no order as to costs.
14. Reference answered in the negative.