Auto India vs Commissioner of Sales Tax and Others

This reference is made by the Tribunal by its order dated November 3, 2006, and by which a Reference Application No. 86 of 2005 filed by the dealer-applicant has been allowed. The Tribunal has referred the following question for answer and opinion of this court:

"(i) Whether, on the facts and the circumstances of the case and on true and correct interpretation, the Tribunal was justified in denying the benefit of entry J8 to the appellant in the context of assessment for the period 1995-96 on the ground that the appellant has not complied with the condition of filing returns as contemplated under entry J8 which has been introduced on March 6, 1996 with retrospective effect, i.e., subsequent to the assessment period?"

The statement of facts which accompany this reference reveals that M/s. Auto India-applicant is an importer and re-seller of vehicles, vehicle components, parts and accessories thereof, televisions, refrigerators, air-conditioners, washing machines, audio equipment, etc. It was assessed under section 33(3) and 33(5) of the Bombay Act, i.e., the Bombay Sales Tax Act, 1959 for the period April 1, 1995 to March 31, 1996. The assessment order was passed on November 9, 1998. That resulted in demand of Rs. 3,25,547.

Aggrieved by this assessment order, the dealer preferred first appeal before the Deputy Commissioner of Sales Tax (Appeals). That was partly allowed on January 2, 2001. Still being dissatisfied, the dealer preferred a second appeal before the Tribunal. The second appeal being Appeal No. 485 of 2001 came to be allowed partly by a judgment and order dated June 10, 2005. The matter was remanded to the assessing authority with directions and one of which is that benefit of entry J8 is not available to the dealer-appellant before us.

It is in these circumstances that a reference application invoking the powers of the Tribunal under section 61(1) of the Bombay Sales Tax Act, 1959 and requesting the Tribunal to refer certain question of law to this court for decision came to be filed. It is on this application that the order was passed and referring the above question for opinion of this court.

Mr. Thakar appearing in support of this reference would submit that what the Tribunal order really connotes is that it is of the opinion that the requirement and particularly the condition No. VI after insertion of entry J8 is capable of substantial compliance. It does not admit of strict compliance. It is thus not mandatory but directory. Yet, the Tribunal has referred the above question and terming it as a question of law for opinion of this court. The Tribunal has already expressed itself on this question and in series of orders which have been referred by the Tribunal in the course of the decision on the applicant''s second appeal. The Tribunal was clearly bound by the view and opinion taken on similar question and issue earlier. It neither terms the opinion as erroneous nor does it disagree with it, but yet finds that the question is still open for being referred to this court. This approach of the Tribunal is erroneous in law. In any event, the Tribunal''s findings on this issue would show as to how it concluded that this condition was substantially complied with. That is why it referred to a revised return and filed allegedly belatedly by the dealer-applicant. It is in these circumstances that it concludes further that the return was filed belatedly and as an afterthought. If such a return was capable of being considered and scrutinized, then the condition is but directory and capable of substantial compliance. The Tribunal, therefore, was not required to refer any question for opinion but simpliciter deal with the case of the dealer on merits.

On the other hand, Mr. Sonpal submits that what the Tribunal''s conclusion really denotes is that the condition is mandatory. It has to be strictly complied with. The principles or doctrine of substantial compliance cannot be invoked and applied. The revised return could not have been accepted. In the circumstances, the question of law should be answered in favour of the Revenue and against the dealer.

We have noted the rival contentions. We have not allowed the parties to refer to plethora of case laws on the principle as to when can a provision be said to be mandatory or directory and what is the doctrine of strict compliance and substantial compliance simply because we find that the Tribunal has extensively referred to the contentions of the parties. In the course of dealing with this issue, the Tribunal found that entry J8 has been incorporated on March 6, 1996, with retrospective effect from 1st October, 1995. In the case before us, the dealer had filed usual monthly returns claiming deduction under rule 46A and showing tax liability at various rates, i.e., 10 per cent, 13 per cent, 16 per cent and 19 per cent. The entry was further amended in the year 1997. The annual return was filed on July 2, 1998 showing tax liability as per the provisions of entry J8. Therefore, the claim of the dealer was that benefit of this entry be granted to him and the matter be remanded back to the assessing authority to work out the tax liability in accordance with the provisions of entry J8.

This course was objected by the Revenue by pointing out that the dealer did not comply with the conditions of entry J8 and hence this benefit was not available. The argument of the Revenue was that the dealer should have filed monthly returns immediately after incorporation of entry J8, but the dealer has failed to do so. Even after the amendment of entry J8 in the year 1997, the dealer has miserably failed in filing monthly returns as contemplated by entry J8. Assessment proceedings were initiated on December 4, 1997 and the order of assessment was passed on December 9, 1998. Just before the conclusion of the assessment, the dealer filed revised annual returns on September 26, 1998, merely to get the benefit of entry J8. Thus, the argument appears to be that by not filing monthly returns immediately after incorporation of entry J8 the dealer has not complied with the main condition of filing monthly returns and payment of tax accordingly. The dealer relied on several judgments of the Tribunal particularly in the case of New Neelam Restaurant in Appeal Nos. 140, 141 and 142 of 2000 decided on 6th October, 2001 and the judgment of the honourable Supreme Court in the case of Commissioner of Central Excise, Pondicherry Vs. ACER India Ltd., . The clarification issued by the Senior Assistant Commissioner of Sales Tax was referred and the argument of the dealer was that delay in filing of the annual return should not come in his way once the conditions in entry J8 have been complied with. There are two orders which the Tribunal has referred and which were relied upon by the Revenue, viz., in the case of Shonan Engineering Works in Appeal No. 130 of 2003 decided on 21st October 2004 and Babubhai & Co. in Second Appeal No. 2512 of 1990 decided on 19th August, 2004.

Thereafter, from paragraph 9 onwards and realising what is the tax and its nature, what the Tribunal finds is that filing of monthly return is not a condition precedent for grant of benefit of entry J8. There is no negative clause as such to debar the dealer from the benefit of entry J8 because returns are filed late. Late filing of monthly returns does not affect the claim of the dealer. Once again, all these are termed as arguments or stand of the dealer and by placing reliance on a clarification from the office of the Commissioner of Sales Tax dated January 6, 2003. If condition of filing returns is considered as directory not mandatory by the Tribunal in the two appeals decided by it, then, the Tribunal was obliged to make a reference to those cases in details. The Tribunal was obliged to consider as to whether these judgments or orders rendered by it applied to the facts and circumstances of the present dealer or were there any other distinguishing features or facts therefrom. Further, whether the said orders are contrary to any binding judgment of the higher court or are rendered in ignorance of a statutory provision and therefore, raise debatable issue and which require opinion from a higher court on a question of law. The Tribunal does nothing of this kind, but simpliciter refers to all the case laws in the field and the case of the dealer and the Revenue. If we note the stand of the Revenue itself, then, it is apparent that its representative did not adopt an extreme position nor did the representative contend that entry J8 having been incorporated on 6th March, 1996, further amended in 1997, the monthly return should have been filed after incorporation but that the dealer failed to do so in this case. Thus, the extreme position as the Tribunal found from the stand of the parties and requiring a question to be referred to this court and as stated to be of law has not been adopted by the Revenue. Thus, this was imminently a case where the Tribunal concluded that the condition No. VI was capable of substantial compliance.

Yet, what we find is that the Tribunal, without in any manner referring to the relevant statutory provisions, the entry and the background in which the same came to be inserted, held that the revised returns have been filed when the working of the tax was shown to the dealer by the assessing authority. The revised returns were not filed within a reasonable time and the reasons given for the delay are not convincing.

If the above conclusion has been reached, then, clearly there was no warrant for referring any question for opinion of this court. The Tribunal has held that the condition is capable of substantial compliance. The Tribunal should have then taken care to refer to the condition itself.

Entry J8 deals with the sales made by registered dealers from October 1, 1995, in each month, of goods other than tax-free goods in respect of which deduction from the turnover of sales under section 8 is not allowed only because of the provisions contained in sub-section (3) of section 12A, but excluding sales made against any declaration prescribed under the Act, the Rules or any notification and (b) sales of any goods in respect of which the rate of sales tax specified in the Schedule is 16 per cent or more. The entries have been added and with some specific object and purpose. The purpose appears to be to deal with those cases where resales made by a registered dealer from a certain period in each month of goods other than tax-free goods in respect of which turnover of sales under section 8 is allowed. Therefore, if one refers to section 8 of the Bombay Sales Tax Act, 1959, it would be apparent that the same deals with single point levying of sales tax on goods specified in Schedule C. The existing section may have been re-numbered, but what it essentially denotes is that there shall be levied sales tax on the turnover of sales of goods specified in Schedule C at the rate set out against each of them in column 3 thereof but after deducting from such turnover of sales the purchases on which the dealer is liable to pay purchase tax under section 14 , resales of goods of Part II of Schedule C purchased by the dealer on or after the appointed date from a registered dealer otherwise than on a declaration furnished in sections 11 or 12 if the requirements of section 12 are satisfied. Then, there is certain proviso and sub-clauses and Explanation. Therefore, if resales are made by registered dealers of goods other than the tax-free goods in respect of which deduction from turnover of sales under section 8 is not allowed only because of the provisions contained in sub-section (3) of section 12A, but certain exclusions therefrom are dealt with by this entry. The entry is itself referable to these provisions and the conditions that have been specified therein, particularly condition VI indicates that notwithstanding anything contained in the Rules, the selling dealer shall pay tax and file returns, as if he is liable to file monthly returns and make payment of tax at eight per cent on the said excess calculated in accordance with columns 3 and 4 in respect of each month. The Tribunal should have further referred to the Rules and particularly the rule in question. That rule has been brought to our notice and which is rule 46B. The rule as it stood at the relevant time and before it was deleted provides for and deals with the reduction of sales price for levy of sales tax in the case of a dealer liable for levy of value added on sales tax on goods specified in Schedule C. The said rule reads as under:

"46B. Reduction of sale price for levy of tax in the case of a dealer (liable for levy of value added of sales tax on goods specified in Schedule C).--(1) If a Registered dealer has not been allowed deduction (under sub-section (1) of section 8 ) from the turnover of sales of goods because of the provisions of sub-section (3) (or, as the case may be, sub-section (3A) of section 12A), then in respect of such sales, he may deduct from the sale price, before reducing it in accordance with rule 46A, the purchase price of such goods excluding goods covered by entry 22 in Part II of Schedule C but including the purchase price of the goods used in the packing of the goods so sold, if such goods have been purchased from,--

(a) a registered dealer who has been certified by the Commissioner under entry 40 of Schedule A; or under entry 39 of Schedule A as the entry stood up to the September 30, 1995; or

(b) a registered dealer whose sales have been exempted from the payment of whole of the tax under any entry of the Schedule to the notification issued under section 41 ; and

(c) from any other registered dealer, whether or not such registered dealer has charged tax separately on his sale of such goods:

Provided that if a registered dealer has claimed reduction of sale price, in respect of purchase referred to in clause (a) or (b), then such dealer and his purchaser including any subsequent purchaser shall not give any certificate in form 31 to any subsequent purchaser of the goods.

(2) No reduction of sale price shall be allowed under this rule if the claimant dealer has claimed drawback, set-off or refund under any rule in respect of the corresponding purchase.

Explanation I.--For the purpose of this rule, the expression ''purchase price'' shall mean the amount of purchase price increased by the amount of sales tax if such tax is collected separately from the claimant dealer by another registered dealer.

Explanation II.--For the purpose of this rule, the expression ''sale price'' shall mean the amount of sale price increased by the amount of sales tax if such tax is collected separately by the claimant dealer from his purchaser."

A perusal thereof would indicate as to how a registered dealer has not been allowed deduction under sub-section (1) of section 8 from the turnover of sales of goods because of section 12A(3) or, as the case may be, sub-section (3)(a), then, in respect of such sales he may deduct from the sale price before reducing it in accordance with rule 46A the purchase price of such goods. Therefore, there are stipulations in the rule itself and if the dealer in this case who was registered has dealt with another registered dealer, then, with a view to enable him to obtain these reductions that the provisions have been inserted. To give effect to the rule itself and completely that one finds that the entry has been inserted. If that entry has come into force as in the case of the present dealer at a later date, but is given effect to from the prior date, then, compliances with certain conditions can be made later on. If one is concerned with only condition No. VI then, we have already indicated as to how in several orders of the Tribunal itself, this condition is considered and held to be capable of substantial compliance. In the present case on the admitted facts, the Tribunal found that the condition is capable of substantial compliance. The later observations of the Tribunal with regard to the alleged delay need not detain us. If the provisions are read in their proper perspective and in the above background, then, the conditions in this entry and particularly condition No. VI can be held to be capable of substantial compliance. If that is how the Tribunal as also we conclude, then the question of law referred for the opinion of this court will have to be answered in favour of the dealer and against the Revenue. It is answered accordingly.

We are pained and anguished to note that despite the Revenue not taking an extreme position and stand and rather agreeing to the interpretation of this condition still the Tribunal found it fit to refer the above reproduced question for opinion of this court by terming it as a question of law. It could have answered that issue on the basis of its own orders. It could have also proceeded on the footing that the question being answered in the above terms does not mean that the application of this condition and to given facts and circumstances would present any problems or hurdles before the assessing authority or the Tribunal. If a condition is held to be capable of substantial compliance then whether the compliance as asserted is substantial, whether the condition is at all complied with are all matters which have to be addressed and gone into in the facts and circumstances of each case. Therefore, we are really surprised as to how repeatedly such questions and which could be termed as mixed ones can be referred for our opinion. That unnecessary puts pressure and burdens this court with proceedings which are avoidable and ought not to have been brought before this court. The precious judicial time of all could then be saved as well. In the light of the conclusions reached in Sales Tax Reference No. 6 of 2008, the question referred in Sales Tax Reference No. 70 of 2009 will also stand answered accordingly, barring the difference or distinction in the date of disposal of the appeal, the composition of the Bench of the Tribunal, all facts and circumstances being identical, it is clarified that our answers are restricted to the questions of law formulated and referred for our opinion by the Tribunal. If there is any other aspect or condition which comes into play our order and the construction of condition VI shall not govern either the application of other conditions nor will control their interpretation. Needless to clarify that after this opinion reaches the Tribunal, it would be open for it to rehear the appeal itself or pass such orders as are permissible in law.