Bhavnagar Chemicals Works Ltd. vs Sales Tax Officer and Others

A.P. Ravani, J.—The petitioner is a public limited company and it is a dealer registered under the appropriate provisions of the Gujarat Sales Tax Act, 1969 (for short "the Act") and also under the provisions of the Central Sales Tax Act, 1956 (for short "the Central Act"). The petitioner is manufacturing groundnut oil and oil cakes and pharmaceuticals. The petitioner is, thus, engaged in the business of manufacture of the aforesaid articles and selling the same.

According to the petitioner it has made payment of the sales tax together with the returns for an amount of Rs. 1,34,790.10 under the Act and for an amount of Rs. 15,512.60 under the Central Act in relation to the turnover for the year 1976. In the year 1977 as regards the tax liability under the Central Act an amount of Rs. 43,956.36 had been paid by the petitioner. According to the petitioner, as provided u/s 42 of the Act, the assessment should have been completed by the respondent-authorities latest by December 31, 1980, in relation to the assessment year 1976 and by December 31, 1981, in relation to the assessment year 1977. The petitioner contends that by issuing different orders respondent No. 3, Deputy Commissioner of Sales Tax, Rajkot Division, Rajkot, has extended the period for assessment untenable and flimsy grounds. Before passing the order, the respondents issued show cause notice to the petitioner and called upon it to make representation against the proposed order of extension of time for assessment. The petitioner has replied to the same and thereafter the orders have been passed by respondent No. 3. The petitioner has challenged the legality and validity of the notices as well as the orders by which the period for assessment is extended. The petitioner prays that these notices and orders be declared as illegal and void. The petitioner has also prayed that if within the period prescribed u/s 42 of the Act assessment order could not be passed then there is no assessment under the provisions of the law. Therefore, in such cases the dealer would be entitled to claim refund of the amount paid by it. Hence, it is prayed that an amount of Rs. 3,20,509.60 be ordered to be refunded to it. It may be noted that after filing of the petition the petitioner appears to have paid further amount than what is mentioned in para 2 of the petition. However, for deciding the petition it is not necessary to go into these details.

There is no dispute with regard to the fact that the provisions of section 42 of the Act are applicable to the petitioner. It is also not disputed that the assessment to be made in respect of the petitioner-company is falling within section 41(3) of the Act meaning thereby that the dealer has made declaration and returns have been furnished. In this connection the dealer has been served with a notice in form 36 and was called upon to attend on July 25, 1978, in relation to the assessment for the year 1976. Similar notice in form 36 was issued and the dealer was called upon on attend on October 16, 1980, in relation to the assessment order for the year 1977. It may be noted that the assessment is for the sales tax leviable under the Act and also under the provisions of the Central Act. In view of this factual position if the assessment is not completed within the prescribed period as provided u/s 42(1) of the Act, the State Government or the Commissioner by issuing order can stay the assessment proceedings of a dealer or a class of dealers for a specified period. This is so provided in first proviso to section 42(1)(b). Though the provision is put in the language of staying the assessment proceedings the effect of the order that may be passed in exercise of the powers conferred on the State Government and/or the Commissioner would be to extend the period of assessment.

In relation to the assessment for the years 1976 and 1977, different orders have been passed by which the time for assessment has been extended from time to time. Before such order, show cause notices have been issued to the petitioner and the petitioner has been afforded an opportunity to make submission as to why the period should not be extended. Details regarding the different orders which have been passed and the show cause notices and the replies which have been given by the dealer are shown hereinbelow in a tabular form :

---------------------------------------------------------------------- Sl. Show cause Reply Order No. notice ---------------------------------------------------------------------- 1. A/1, page 38 of A/2, page 40 A/3, page 42, time extended the petition dated November 20, up to December 31, 1981 in dated November 1980. relation to the year 1976. 12, 1980. 2. A/4, page 45 A/6, page 49 A/7, page 51, dated dated November November 30, December 21, 1981, time 30, 1981. 1981. extended up to December 31, 1982, in relation to the years 1976 and 1977. 3. December 3, December 20, A/10, page 57, December 27, 1982 (not 1982 (not 1982 time extended up to produced.) produced.) December 31, 1983 in relation to the assessment orders commencing from January 1, 1972 to December 31, 1979. 4. A/11, page 59 A/12, page 61 A/13, page 62, dated 59 dated October October 14, October 27, 1983 time 7, 1983. 1983. extended up to December 31, 1984 in relation to the years 1976, 1977, 1978, 1979 and 1980. 5. A/5, page 47 A/6, page 49 A/8, page 58 dated November dated November November 30, 25, 1982, time extended up 23, 1981. 1981. to December 31, 1983 in relation to the year 1977. ----------------------------------------------------------------------

Section 42 has been enacted by the Legislature with a view to see that the assessment proceedings do not remain pending for an indefinite period. Therefore in respect of the cases covered by the provisions of section 41(3) or 41(4) the assessment is required to be completed within a period of two (formerly it was three years). However, this time-limit is not an iron-clad rigid formula. The State Government and the Commissioner have been conferred with the powers to stay the assessment proceedings of a dealer or a class of dealers. The section also provides that the period during which the assessment proceedings are stayed shall be extended while computing the period of limitation prescribed in section 42(1)(a). Thus the effect of the entire provisions of section 42(1)(a) is on the one hand to prescribe the time-limit for completing the assessment and at the same time the State Government and the Commissioner have been conferred power to extend the time-limit. As far as the State Government is concerned, this power can be exercised "subject to such conditions as to may deem fit", while the Commissioner can exercise this power "subject to such conditions as may be prescribed."

The conditions have been prescribed in rule 37-A of the Gujarat Sales Tax Rules, 1970 (for short "the Rules"). Rule 37-A, inter alia, provides that the Commissioner shall not stay the assessment proceedings for a period of more than five years at any time and that the Commissioner shall reduce in writing the reasons and circumstances necessitating stay of any proceedings in respect of a dealer or a class of dealers. Thus the provisions of section 42 read with rule 37-A indicates that the Commissioner before exercising the power u/s 42(1) should comply with the conditions. There is no dispute with regard to the fact that the Commissioner has not contravened the conditions as regards the stay of the proceedings for a period of more than five years at any time. The dispute is with regard to another condition which requires the Commissioner to reduce in writing the reasons and circumstances necessitating stay of proceedings.

There is formal compliance of the provisions of rule 37-A. Reasons have been reduced into writing by the Commissioner before passing the order. The Commissioner has in fact issued notice indicating the reasons why the period was required to be extended. The dealer has been afforded an opportunity to make his submissions. Thereafter the impugned orders have been passed. Therefore, the short question is - are the reasons mentioned by the Commissioner in the impugned order extraneous or irrelevant ? Be it noted that this is a proceeding under article 226/227 of the Constitution of India. In this proceedings, ordinarily the High Court would not exercise its extraordinary power for examining the propriety or otherwise of the reasons. On the face of it or after examining the relevant records, if the High Court finds that the reasons given are germane or relevant for the purpose of exercising the powers, the inquiry under article 226/227 of the Constitution of India should come to an end.

It should not be lost sight of the fact that the provisions contained in section 42(1) and proviso thereto and rules 37-A pertain to procedural aspect. By this provision no substantive liability is created. The provision relates to the time within which the assessment should be completed. Rule 37-A specifically provides for certain conditions to be complied with. The underlying object of the provision is to ensure that the Commissioner indicates reasons why it was necessary to stay the proceedings. It is not necessary for him to pass a speaking order. The order may not disclose reasons. All that is necessary for the Commissioner is to note down the reasons in writing. The object behind this provision is to evolve built-in-check against arbitrariness. Once an authority is required to assign reasons for taking a particular action, that itself is a check against arbitrary exercise of power. Another purpose for laying such condition is that any other officer who may succeed in the office would immediately be able to know the reasons why the period for assessment is extended. The reasons would be on record. The successor officer would be in a position to look at the same and proceed further with the matter.

In view of the aforesaid object behind the provisions of section 42 of the Act and rule 37-A of the Rules, it becomes all the more necessary for the High Court to see that the orders passed u/s 42(1) of the Act by which the period of assessment is extended are not ordinarily disturbed if there is formal compliance with the provisions of the Act. Unless it is shown on the face of the record, that there is contravention of the provisions of the Rules it would not be proper to interfere with the administrative procedural matters in taxation proceedings. Therefore, one has to find out as to whether any gross case is made out to show that any extraneous or irrelevant consideration has weighed with the Commissioner while extending the period of assessment.

In annexure A/1, show cause notice dated November 12, 1980, it is stated that the consignment transactions were required to be examined deeply in further details and the proceedings u/s 46-A were required to be taken. (By section 46-A it is provided that in certain cases the matters were to be dealt with by the higher authority, i.e., the Assistant Commissioner of Sales Tax and not by the Sales Tax Officer). In annexure A/4 dated November 30, 1981, reasons stated are that the proceedings u/s 46-A were pending before the Assistant Commissioner of Sales Tax. In annexure A/5, show cause notice dated November 23, 1981, it is stated that the transactions of dispatches of "jangad" (subject to approval) were required to be examined. In annexure A/11, show cause notice dated October 7, 1983, the reasons mentioned are that proceedings u/s 46-A were pending. As far as annexure A/10, show cause notice dated December 27, 1982 is concerned, there is reference to show cause notice dated December 3, 1982 and there is also reference to reply dated December 20, 1982 submitted by the dealer. Neither the said show cause notice not the reply is placed on record. Therefore, it is not clear as to what was the reasons assigned in the show cause notice. But from the order it appears that it was not possible to complete the assessment within the time prescribed u/s 42(1)(a) of the Act and u/s 9(2) of the Central Act.

The learned counsel for the petitioner submitted that the reasons assigned are in fact no reasons and they are ruse for extending the time and the verification is not done is no ground. He further submitted that why the verification has not been completed should have been stated in the order much more so when the dealer submitted in his reply that the verification was already completed. As far as the order dated October 27, 1983, by which the time is extended up to December 31, 1984 is concerned, it is submitted that on overall consideration of the facts and circumstances of the case, this should be held to be illegal and void inasmuch as there is non-application of mind. Despite the fact that the dealer submitted in his reply that there is no question of extending the period of assessment in relation to the year 1978 and yet in the show cause notice, year 1978 was mentioned. Even after this fact was brought to the notice of the Commissioner, the Commissioner has extended the period of assessment for the year 1978 also. Therefore, it is submitted that there was non-application of mind and the order is passed in a casual manner. Hence the same should be quashed and set aside.

The aforesaid submissions cannot be accepted for the simple reason that the reasons assigned are certainly germane for the purposes of the Act. Section 42 of the Act confers power upon the State Government and upon the Commissioner for the purposes of this section. It means that the power is conferred for the purpose of making assessment within reasonable time. For this purpose, if the State Government or the Commissioner considers it necessary, then the State Government subject to the conditions as it may deem fit and the Commissioner subject to the conditions mentioned in rule 37-A of the Rules can and should exercise this power. Be it noted that this is not merely an enabling provision empowering the State Government and the Commissioner to exercise this power and extend the period of assessment. In certain cases it would be obligatory upon the State Government and the Commissioner to exercise this power to see that the period of assessment is extended so that the revenue is not put to loss. By extending the period of assessment, no orders adverse to the interest of the assessee is passed.

In essence what has happened, is that the Revenue asked for adjournment. The Revenue prayed that for such and such reasons time for assessment may be extended. It is in the nature of application for adjournment. Viewed from this angle, if in an adjournment application instead of "x" year if "y" year is written or "x" or "y" both years are written, the application for adjournment cannot be rejected on such ground. Similarly the order that may be passed granting adjournment even while taking into consideration the year which was not in contemplation is passed, the order would not become bad. On such ground, the order cannot be said to be suffering from non-application of mind. It is only a case of error. This is what is explained in the affidavit-in-reply filed by the Deputy Commissioner of Sales Tax.

The contention that on the expiry of the time prescribed in section 42(1)(a), the dealer gets vested right to say that it should not be assessed thereafter has no merits. The Legislature has provided in the same section for period of limitation as well as for the extension of the period of limitation. Once the conditions for passing the order extending the period are satisfied, the period of limitation stands extended. Therefore the contention that the petitioner had got vested right on the expiry of the period of limitation prescribed u/s 42(1)(a) has no merits.

In the facts of the case, one may look at the conduct of the dealer. As disclosed in the affidavit-in-reply from July 10, 1981 onwards, the assessment proceedings were adjourned for 15 times. Only on two occasions some work could be done. On all other occasions either the dealer had applied for adjournment or the dealer remained absent. Thus on 13 occasions the matter could not proceed further because the dealer did not co-operate. At any rate taking the charitable view, the dealer was not in a position to proceed further with the assessment proceedings. It is further explained in the affidavit-in-reply that after May 15, 1982, the matter was remanded to the Sales Tax Officer for verification because certain discrepancies were found. The papers remained with the Sales Tax Officer from July 1982 to May, 1983. Thereafter the dealer was called on July 28, 1983. But the dealer remained absent. Again on October 10, 1983 and on October 14, 1983, consignment transactions were partly verified. Thereafter on October 29, 1983, the dealer was called. On that day, the dealer sought adjournment. The dealer was again called on November 14, 1983 and on November 15, 1983. On these two dates consignment transactions were verified and the case was adjourned. Thereafter it appears that the petitioner approached this Court on December 16, 1983 and moved the court on December 19, 1983. This Court initially issued notice and on January 17, 1984, admitted the matter and passed interim order to the effect that final order of assessment be not passed. Thus the assessment proceedings could not be completed. The aforesaid resume of facts do not require any comments. The facts speak for themselves. It is difficult to lay blame at the door of the department and say that the department was responsible for delay or that the department has acted unreasonably in extending the period of assessment.

No other contention is raised.

There is no substance in the petition. Hence rejected. Rule discharged. Interim relief granted stands vacated.

Petition dismissed.