Bombay High Court
Khandelwal Ferro Alloys Limited vs State Of Maharashtra on 10 August, 1990
Equivalent citations: 1993(1)MHLJ218
JUDGMENT V.A. Mohta, J.
1. In this reference by the Sales Tax Tribunal at the instance of the assessee under section 61(1) of the Bombay Sales Tax Act, 1959 ("the Act"), the following question is to be answered :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the Deputy Commissioner of Sales Tax was competent under section 57 to revise the order passed by the Assistant Commissioner of Sales Tax (Appeals), when the point of allowing the freight charges was not the subject-matter of second appeal before the Tribunal in Second Appeal No. 543 of 1975 decided on February 27, 1976 ?"
2. The question arises against the following back-drop. The applicant, M/s. Khandelwal Ferro Alloys Ltd., Nagpur, was assessed by the Sales Tax Officer, Nagpur, for the period January 1, 1971 to December 31, 1971 on the turnover of Rs. 5,08,17,832 as sales in the course of inter-State trade and commerce under the provisions of the Central Sales Tax Act, 1956 ("the Central Act"), vide order dated February 12, 1973, as rectified on April 25, 1973. This order was challenged by the assessee in an appeal under section 55(1)(a) of the Act before the Assistant Commissioner of Sales Tax (Appeals), Nagpur, on two grounds about incorrect inclusion in the turnover of sales of (i) railway freight charges to the tune of Rs. 9,85,352 and (ii) trade discount to the tune of Rs. 8,19,750. The Assistant Commissioner by order dated February 21, 1975, partly allowed the appeal upholding the ground about the wrongful inclusion of railway freight and repelling the ground relating to discount; as a result the assessable turnover was reduced by a sum of Rs. 9,85,352. Not fully satisfied by the relief granted in appeal, the assessee preferred a second appeal before the Tribunal under section 55(2) of the Act for the relief of exclusion of discount from the turnover. The said appeal was allowed and the matter remanded to reconsider the question of discount afresh in the light of the observations made by the Tribunal (S.A. No. 543 of 1975 decided on February 27, 1976).
3. The Deputy Commissioner of Sales Tax, Nagpur, purporting to exercise revisional jurisdiction vested in him under section 57 of the Act read with section 9(2) of the Central Act, issued a notice dated February 3, 1978, in form 40 to the assessee to show cause as to why the order of the Assistant Commissioner dated February 21, 1975, excluding the railway freight charges from the sale price should not be revised. The assessee gave a reply justifying the order on merits, but also raising a legal objection to the jurisdiction of the Deputy Commissioner to revise the order of the Assistant Commissioner after passing of the order of the Tribunal dated February 27, 1976. The Deputy Commissioner overruled the legal objection and held against the assessee on merits. Aggrieved thereby the assessee filed an appeal before the Tribunal raising only a jurisdictional point. The Tribunal by order dated October 8, 1982, dismissed the said appeal. The present reference arises out of that order.
4. Two provisions of the Act fall for consideration. They are section 55 (appellate powers) and section 57 (revisional powers). Section 55 read thus at the material time :
"55. (1) An appeal, from every original order, not being an order mentioned in section 56 passed under this Act or the rules made thereunder, shall lie -
(a) if the order is made by a Sales Tax Officer, or any other officer subordinate thereto, to the Assistant Commissioner;
(b) if the order is made by an Assistant Commissioner, to the Deputy Commissioner;
(c) if the order is made by a Deputy Commissioner, Additional Commissioner, or Commissioner, to the Tribunal.
(2) In the case of an order passed in appeal by an Assistant Commissioner, or by a Deputy Commissioner, a second appeal shall lie, at the option of the appellant, either to the Commissioner or to the Tribunal.
(3) Every order passed in appeal under this section, shall, subject to the provisions of sections 57, 61 and 62, be final.
(4) Subject to the provisions of section 60, no appeal shall be entertained unless it is filed within sixty days from the date of the communication of the order appealed against.
(5) No appeal, against an order of assessment with or without penalty, or against an order imposing a penalty, or against an order directing the forfeiture of any tax collected by a dealer, shall ordinarily be entertained by an appellate authority, unless such appeal is accompanied by satisfactory proof of the payment of the tax with or without penalty, or, as the case may be, of the payment of the penalty, or the amount forfeited, in respect of which the appeal has been preferred :
Provided that, an appellate authority may if it thinks fit, for reasons to be recorded in writing, entertain an appeal against such order -
(a) without payment of the tax with penalty (if any), or as the case may be, of the penalty or of the sum forfeited, on the appellant furnishing in the prescribed manner security for such amount as it may direct, or
(b) on proof of payment of such smaller sum, with or without security for such amount of tax, penalty or sum forfeited which remains unpaid, as it may direct.
(6) Subject to such rules of procedure as may be prescribed, every appellate authority (both in the first appeal and the second appeal) shall have the following powers :-
(a) in an appeal against an order of assessment, it may confirm, reduce, enhance or annul the assessment; or it may set aside the assessment and refer the case back to the assessing authority for making a fresh assessment in accordance with the direction given by it and after making such further inquiry as may be necessary; and the assessing authority shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment;
(b) in an appeal against an order imposing a penalty, the appellate authority may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty;
(c) in any other case, the appellate authority may pass such orders in the appeal as it deems just and proper :
Provided that, the appellate authority shall not enhance an assessment or a penalty or reduce the amount of draw-back, set-off or refund of the tax, unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction."
We may notice that sub-section (6) has been substituted by Maharashtra Act No. 42 of 1971, which was brought into force with effect from December 1, 1971. Section 57 reads thus :
"57. (1) Subject to the provisions of section 56 and to any rules which may be made in this behalf, -
(a) the Commissioner may, on his own motion, call for and examine the record of any order passed (including an order passed in appeal) under this Act or the rules made thereunder by any officer or person subordinate to him and pass such order thereon as he thinks just and proper :
Provided that, no notice in the prescribed form shall be served by the Commissioner under this clause after the expiry of three years from the date of the communication of the order sought to be revised, and no order in revision, shall be made by him hereunder after the expiry of five years from such date;
(b) the Tribunal, on application made to it against an order of the Commissioner (not being an order passed under sub-section (2) of section 55 in second appeal) within four months from the date of the communication of the order, may call for and examine the record of any such order, and pass such order thereon as it thinks just and proper.
(2) Where an appeal lies under section 55 and no appeal has been filed, no proceedings in revision under this section shall be entertained upon application.
(3) No order shall be passed under this section which adversely affects any person, unless such person has been given reasonable opportunity of being heard.
(4) If the Tribunal rejects any application for revision under this section, the Tribunal shall record the reasons for such rejection."
5. Perusal of the above provisions reveals that (i) the Tribunal is the appellate as well as the revisional authority over the Commissioner and hence in quasi-judicial matters the Commissioner is subordinate to the Tribunal; (ii) only an appellant is given a right of second appeal; (iii) the appellate authority has power even to "enhance" the assessment; (iv) the Commissioner can only revise an order passed by a subordinate authority.
August 9, 1990 :
6. Basic controversy is whether the revisional jurisdiction of the Commissioner can be exercised with relation to an issue which could have been dealt with by the Tribunal, but has not been dealt with as a matter of fact. We do not seem to be operating upon a totally virgin field in the matter of the extent of revisional powers of the Commissioner in the context of the second appellate powers of the Tribunal under the Act. These very provisions fell for consideration before the Supreme Court in the case of Tel Utpadak Kendra v. Deputy Commissioner of Sales Tax [1981] 48 STC 248. Since both the parties are heavily relying on the ratio of said decision, it is necessary to notice its factual background and also the points concluded therein.
By a common appellate order dated September 29, 1973, the Assistant Commissioner reduced to some extent the quantum of turnover for two different periods assessed by the Sales Tax Officer and consequently the tax liability and penalty for both the periods were reduced partly. Not fully satisfied by the relief granted by the Assistant Commissioner, the assessee filed second appeals before the Tribunal on December 8, 1973. During the pendency of the second appeals before the Tribunal, the Deputy Commissioner issued two notices under section 57 of the Act to the assessee on April 24, 1974, requiring it to show cause as to why the orders passed by the Assistant Commissioner dated September 29, 1973, should not be revised. The assessee raised legal objections to the exercise of revisional powers which were rejected by order dated September 12, 1975. That order was maintained by the Tribunal in appeal as well as the Bombay High Court in writ jurisdiction. The High Court took a view consistent with its previous decisions that it is always open to the Commissioner to interfere in revision with an order prejudicial to the Revenue notwithstanding that such order may already be under appeal before the Tribunal. The High Court, "felt compelled to take this view, because, in its opinion, the statute did not provide any other forum or jurisdiction for protecting the interests of the Revenue". The Supreme Court did not agree with the High Court, allowed the appeal filed by special leave and set aside the notices issued as well as the orders passed by the Commissioner. The Supreme Court took the view (i) that the Tribunal was a superior authority to the Commissioner, (ii) that the Tribunal had jurisdiction under new section 55(6) even to set aside that part of the order which was in favour of the assessee and (iii) that the law has provided to the department ample opportunity to ask for enhancement of the levy and thus has the forum to protect the interest of Revenue. The Supreme Court noticed a distinction between the extent of powers in second appeal under section 55(2) of the Act and section 253 of the Income-tax Act (IT Act). It also took into consideration certain enactments in which there is a specific bar against exercise of revisional jurisdiction in certain contingencies and the submission based upon absence of such provisions in the Act that Legislature did not intend to create such a bar in the Act. The Supreme Court held :
"En passant, it will be noticed that sub-section (6) of section 55 of the Bombay Sales Tax Act is in pari materia with sub-section (1) of section 251 of the Income-tax Act, 1961. The language is almost identical. Sub-section (1) of section 251 sets forth the same three categories and the power to enhance is confined to an order of assessment and an order imposing a penalty. But in the case of a second appeal under the Income-tax Act, there is a distinct departure from the scheme under the Bombay Sales Tax Act. Section 253 does not expressly speak of the 'power to enhance' and makes no distinction in regard to the extent of the appellate power between any of the cases in which a second appeal lies from an order under section 251.
It is evident then that in a second appeal under sub-section (2) of section 55 of the Bombay Sales Tax Act, the Tribunal has power to enhance the assessment. That being so, plainly it is open to the Revenue to invoke that power in a pending second appeal filed by the dealer before the Tribunal. The High Court is in error in concluding that the power to enhance an assessment can be discovered only in the revisional jurisdiction of the Commissioner and nowhere else ..........
Our attention has been invited to section 34 of the Maharashtra Agricultural Income-tax Act, 1962, where when defining the revisional power of the Commissioner the Legislature has expressly incorporated a provision prohibiting the Commissioner from exercising his revisional power against an order pending in appeal before the Assistant Commissioner or Tribunal. It is urged that if a similar prohibition was intended against the Commissioner under the Bombay Sales Tax Act, an express provision to that effect would have been made. Reference has also been made to the provisions in the Customs Act, 1962, conferring revisional jurisdiction. We are not impressed by the contention. The absence of an express provision cannot detract from the conclusion reached by us - a conclusion flowing from the necessary intendment of the statute - that the Commissioner being a subordinate authority to the Tribunal, cannot interfere with an order pending in appeal before the Tribunal, and further that the interest of the Revenue is protected by the power of enhancement vested in the Tribunal while disposing of a second appeal filed by a dealer."
We may mention that section 34 of the Maharashtra Agricultural Income-tax Act, 1962, creates a bar against exercise of revisional jurisdiction not only when the order is pending on an appeal but also when the order is made the subject of appeal.
7. It is contended on behalf of the State that the ratio of the above Supreme Court decision applies only to a case where the second appeal is pending before the Tribunal and not the present case where appeal stood disposed of. This contention received a favourable response from the Tribunal. But we are unable to see any reason as to why logical extension of the ratio will not apply to a case where appeal is already disposed of. Submission of the learned counsel for the assessee is that in fact the ratio would apply to such a case with more rigour.
8. We have already noticed the factual positions obtained in the instant case. The assessee had filed a second appeal only relating to non-deduction of discount from the turnover since the deduction of the railway freight claimed by him was allowed in the first appeal and the subject-matter of show-cause notice issued by the Commissioner (deduction of railway freight) was neither raised by the department nor actually dealt with by the Tribunal. That the department could have raised the question at the time of hearing of second appeal and prayed for enhancement of assessment on that ground and the Tribunal could have considered it is not disputed before us. The gist of the submission is that bar would operate only where there is actual decision on the issue and not otherwise. In our judgment, such a view would militate not only against the ratio of the above Supreme Court decision but also the principle of merger - so vehemently pressed into service on behalf of the assessee.
9. There are two leading cases of the Supreme Court dealing with the question of merger of order of inferior court in the order of superior court. First is the case of Commissioner of Income-tax v. Amritlal Bhogilal & Co. . A combined order of assessment and grant of registration was passed by the Income-tax Officer under the IT Act. The assessment order is appealable but order of registration is not. There was appeal against the said order. The assessment order was held to have been merged in the appellate order, but not the order of registration. The legal position was stated thus :
"There can be no doubt that, if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority modifies or reverses the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced. In law the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmance of the decision of the Tribunal by the appellate authority the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement; ......"
Second is the case of State of Madras v. Madurai Mills Co. Ltd. , wherein it is observed :
"But the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by the inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there is a fusion or merger of two orders irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction."
The above case relates to section 12 of the Madras General Sales Tax Act, 1939 and is rendered in the following background : In the turnover of sales returned by the assessee additions under two heads were made in the assessment order. In appeal one addition was upheld and the other was not. On the basis of appellate order, the order of assessment was revised on November 28, 1952, by the assessing authority. Against the revised order dated November 28, 1952, the assessee preferred a revision raising altogether new objection for the first time claiming certain exemption which was not claimed even in the original return. Revision was dismissed on August 21, 1954. On August 4, 1958, the Board of Revenue issued a show-cause notice on yet another altogether new ground proposing to revise the original assessment order. Four years limitation is prescribed under that Act for exercise of such suo motu power. Objection was raised by the assessee that notice was barred by time. It was overruled by the Board on the ground that the original assessment order had merged in the revisional order dated August 21, 1954 and hence notice given within four years from that date was in time. The Madras High Court in appeal set aside the order of the Board holding that the said question was not at all before the revising authority, the only subject-matter of revision proceedings was the order of revised assessment dated November 28, 1952 and hence there was no merger. Consequently it was held that the notice was barred by time. The Supreme Court upheld the decision of the High Court.
10. Thus the legal position with regards to merger boils down to this. If a decision is appealable and is appealed against, the original decision merges in the appellate decision and it is the appellate decision alone which is operative and enforceable - be it reversing, modifying or confirming. But the principle is not of universal application. All depends upon the subject-matter of the decision and the scope of appellate or supervisory jurisdiction under a particular statute. We are unable to see any reason as to why the principle of merger would not apply to the instant case. Assessment order passed in the first appeal was challenged in the second appeal before the Tribunal under section 55(2) of the Act by the assessee on the ground which was held against him. In that appeal the Tribunal had jurisdiction even to enhance the levy and pass order in favour of the department on the point on which the assessee had succeeded in first appeal. What was appealed against was the order assessing sales tax under section 33 of the Act. The term "order" is not defined under the Act. Hence its normal concept will have to be borne in mind. Ultimate computation of tax is the cumulative effect of decisions of several points such as deductions, additions, etc., permissible under the Act. Every intermediate process or stage of decision or in other words finding on every issue is not appealable. It will thus be seen that the assessment order is composite whole and a single unit and it is that unit which is appealable. Power of enhancement conferred by sub-section (6) of section 55 leaves no manner of doubt that the Tribunal has all the power to do in second appeal what the Commissioner can do in revision under section 57. Indeed, the Tribunal is superior to the Commissioner even in revisional jurisdiction. The second appeal was fully heard and the whole matter was before the Tribunal. Neither the department requested the Tribunal to set aside the relief granted to the assessee in first appeal nor has the Tribunal chosen to do so. It accepted the point raised by the assessee in principle and remanded the matter for further enquiry. Does it not mean that by necessary implication the decision on the point relating to wrongful inclusion of railway freight held in favour of the assessee in the first appellate order was con Firmed in the second appeal ? It is this approach which is adopted by the Supreme Court in the case of Tel Utpadak Kendra . Thus principle of merger is impliedly accepted by the Supreme Court without saying so in specific terms. The aspect that no specific right of appeal or cross-objection is conferred on the department under section 55 does not, under the circumstances, alter the legal position. There was merger of the first appellate order in the second appellate order irrespective of the points urged by the parties and decided by the appellate authority.
11. We may at this stage notice that both the parties relied upon a long line of judgments of various High Courts mainly in the context of section 263 of the IT Act taking divergent views on the question as to whether there is merger of the order on the issues which could have been dealt with by the appellate authority but have not in fact been dealt with. Suffice to say that almost all of them have been referred by the Full Bench of the Karnataka High Court in the case of Commissioner of Income-tax v. Hindustan Aeronautics Ltd. [1986] 157 ITR 315. The Full Bench affirmed the view of the Division Bench taken earlier that in such cases entire order merges irrespective of the points urged and decided, and the Commissioner is precluded from exercising revisional jurisdiction even on the point not urged and/or not decided. It is also observed that such a view is neither unreasonable nor erroneous; it held the field in the State for a long time and hence it should be upheld. Detailed reference to all these decisions is not necessary in view of the case of Tel Utpadak Kendra and also because they are all cases under the IT Act, the second appellate provisions of which are held to be not in pari materia with the provisions of the Act, in that very judgment.
12. We may notice that in two cases - (i) Commissioner of Commercial Taxes, Bihar v. Rameshwar Das Panna Lal [1974] 34 STC 296 and (ii) Commissioner of Commercial Taxes, Bihar v. Rohtas Industries Ltd. [1979] 43 STC 484, the Patna High Court has taken a view consistent with the view taken by us, in the matter of the Bihar Sales Tax Act, 1947, the relevant provisions of which appear to be in pari materia with the provisions of the Act.
August 10, 1990 :
13. The department heavily relied upon the decision of this Court in Manganese Ore (India) Ltd. v. Assistant Commissioner of Sales Tax (Special Civil Application No. 56 of 1975 decided on June 23, 1981) ratio of which seems to have weighed with the Tribunal in holding against the assessee on the point. In our view, the ratio of that decision will have no application to the instant matter. It related to the period much before the power of enhancement was conferred upon the appellate authority under sub-section (6) of section 55 by Maharashtra Act No. 42 of 1971 which was neither placed before the court for consideration nor was considered, perhaps because it was not attracted.
14. Our attention was drawn on behalf of the department also to the case of Commissioner of Sales Tax v. Sanawad Co-operative Society [1984] 55 STC 54 (MP), which is with relation to the M.P. General Sales Tax Act, 1958. That decision was rendered in the context of limitation of three years prescribed for revision by the Commissioner under section 39(2) of the said Act. A turnover which was not assessed originally was the subject-matter of revision. Appeal was filed by the assessee against the original assessment. Question arose as to whether the limitation would start from the date of original order or the appellate order. In that context the Madhya Pradesh High Court held that there was no merger of the original order and hence limitation would start from the date of original order and not the appellate order. The said decision does not directly deal with the controversy before us. Moreover it has not considered the ratio of Tel Utpadak Kendra .
15. Our attention was drawn to the order passed in Second Appeal No. 542 of 1975 against the same assessee while assessing the liability under the Act. In that decision the Tribunal has specifically passed an order confirming the decision of the first appellate authority. It is contended that absence of such a concluding line in the second appeal with which we are concerned indicates that that part of the order which was in favour of the assessee in the first appellate order was not confirmed. We are unable to see how that aspect makes any difference.
16. To conclude, the question is answered in the negative. No order as to costs.
17. Reference answered in the negative.