Govinda Prabhu and Bro. vs Addl., Sales Tax Officer

K.S. Paripoornan, J.—The petitioner is an assessee to sales-tax. It is a firm doing business in the manufacture of iron and steel materials. For the assesment year 1980-81, amongst others, the petitioner claimed that in the total turnover returned by it, a turnover of Rs. 2,17,564.42 related to umbrella ribs made of steel and a turnover of Rs. 3,47,603.93 related to umbrella tubes made of steel were exigible. to tax in law at the rate of 6% and 4% respectively under Entry 45 of the 1st Schedule and serial No. 3(ii)(k) of the II Schedule of the Kerala General Sales-tax Act, 1963, respectively. The respondent, Additional Sales-tax Officer, Res. HI, Trichur proposed as per Ext. PI, to assess these items at 8% under item 121 of Schedule 1 of the Kerala General Sales-tax Act, 1963, as amended in 1980. The assessee filed objections thereto dated 21-5-1982 (Ext. P2). He reiterated the stand that entry No. 121 of the 1 schedule is not applicable and it is only item 45 of the 1 Schedule and item 3(h) (k) of the II Schedule that will apply to instant case. It was also mentioned therein that if there is any doubt in the matter a reference may be made to the Government for clarification. By Ext. P3 order dated 24-5-1982 the respondent assessed the said disputed turnover at 8% as proposed by him. In Ext. P3 order, it was found that under total tax due, there is an excess payment of Rs. 14,710.69. This was adjusted against additional sales-tax assessment (tax due on declared goods) and balance tax payable was arrived at Rs. 26852.57. Ext. P3 also specified that under surcharge a sum of Rs. 7920.26 was available as surplus and it was adjusted to 1983-84. It may be mentioned that Ext. P3 is for the assessment year 1980-81 (accounting period ending by 31-3-1981) and the order is dated 24-5-1982 and the adjustment of excess surcharge paid was made for the year to begin from 1-4-1983. Ext. P4 is the consequential notice of demand for the balance tax due as per Ext. P3. In this O.P. the petitioner prays for the issue of an appropriate writ to quash Ext. P3 order and the consequential Ext. P4 notice of demand on many grounds. There is also a prayer for the issue of a writ of a mandamus to command the respondent to refund the sum of Rs. 7920.26 with interest at 16% and for other reliefs. The respondent has filed a detailed counter-affidavit dated 22nd June 1983, and an additional counter affidavit dated 16th of June, 1984. The petitioner has filed CMP No. 14709 of 1984 to amend the O.P. to include a prayer which in effect assails Ext. P3 order on the ground, that it is a non-speaking order and so violative of the fundamental rights of the petitioner and his partners under Article 14 of the Constitution and also that the said order violates the principles of natural justice. The amendment was allowed. A reply affidavit has been filed by the petitioner dated 4th of June, 1984.

I heard Mr. V. Rama Shenoi, counsel for the petitioner, and also Mr. N. N. Divakaran Filial, Senior Government Pleader, who appeared for the respondent. Certain clarifications were obtained from the officer who passed Ext. P3 order as also the Deputy Commissioner of Sales-tax, Central Zone, Ernakulam, Mr. Karunakara Panicker who were present in court. Mr. V. Rama Shenoi, petitioner''s counsel, assailed Ext. P3 assessment order and Ext. P4 consequential notice of demand mainly on the following grounds:

(a) The respondent failed to consider Ext. P2 in accordance with law. There is no adjudication as to why the disputed turnover is assessable under entry 121 of the I schedule of the Kerala General Sales-tax Act. It has been so assumed arbitrarily. The order contains no reason. Ext. P3 is not a speaking order in this regard. As a quasi-judicial authority, the 1st respondent, in passing Ext. P3, should have passed a speaking order on this crucial disputed issue. In failing to do so, he has acted illegally and in violation of the principles of natural justice. It is void and deserves to be annulled.

(b) The respondent acted wholly without jurisdiction and unauthorisedly in adjusting the excess surcharge of Rs. 7920.26 of the year 1980-81 for a future year 1983-84, long prior to that year. There is no provision of law to do so.

Government Pleader Mr. Divakaran Pillai contended that the statute has provided an equally efficacious alternate remedy to assail Ext. P3 order by way of appeal etc. and so this Court should not exercise the jurisdiction vested in it under Article 226 of the Constitution of India. The objection raised by the petitioner in Ext. P2 was adverted to and rejected in Ext. P3 order. It is unnecessary to give reasons therefor. Failure to do so is not illegal or otherwise infirm. The question whether the disputed turnover in the instant case falls within one entry or the other, about which the assessee and the Revenue took different stand, can be decided only after ascertainment of facts and circumstances and the decision on this issue is a question of fact. Normally, this court will not interfere in such matters to proceedings under Article 226 of the Constitution. On that ground, Ext. P3 is not liable to be challenged. The adjustment of excess surcharge of this year, for the year 1983-84 was made under a mistake, as stated in the additional Counter-affidavit dated 16-6-1984. There was no wilful intention to cause any harassment to the assessee (petitioner) in this regard.

At the outset, I should state that I do not propose to go into the merits of the rival contentions raised by the parties as to whether the disputed turnover will-fall under item No. 121 of I schedule of the Kerala General Sales Tax Act as held by the Revenue or under item 45 of the I Schedule and item No. 3 (ii) (k) of the II Schedule. I doubt whether it will be correct to state that the question as to whether "the goods", in the instant case will fall into one or the other items under the Kerala General Sales Tax Act, is a pure question of fact. It may be, a question of law, if the circumstances, stated by the Supreme Court in State of U.P. and Others Vs. Indian Hume Pipe Co. Ltd., are present. But for the purpose of disposing this case, it is not necessary to adjudicate that question. It is true that in view of the recent decision of the Supreme Court in Titaghur Paper Mills Co. Ltd. v. State of Orissa ( 1983 SC 603) in tax matters, this Court will not ordinarily exercise the jurisdiction under Article 226 of the Constitution, when equally efficacious remedies are provided by the Statute unless the vires of some provision in the statute or in the rules is in issue or there is violation of the principles of natural justice. For reasons, which will follow, this is a case where the respondent has acted in violation of the principles of natural justice and also totally in excess of jurisdiction in passing Ext. P3 order.

It cannot admit of any doubt, that the respondent, assessing authority, is performing a quasi-judicial function in effecting an assessment. He has to act in accordance with law. He should act honestly, fairly, reasonably and also consistent with the principles of natural justice. The relevant statutory provision regarding the procedure to be followed by the assessing authority may be adverted to. Section 17(1), (2) and (3) of the K.G.S.T. Act 1963 may also be perused in this connection:

Procedure to be followed by the assessing authority.--

(1) Every dealer who is liable to pay tax under this Act shall submit such return or returns relating to his turnover in such manner and within such period as may be prescribed.

(2) If the assessing authority is satisfied that any return submitted under subsection (1) is correct and complete, at Shall assess the dealer on the basis thereof.

(3) If no return is submitted by the dealer under sub section (1) within the prescribed period, or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority shall, after making such enquiry as it may consider necessary and after taking into account all relevant materials gathered by it, assess the dealer to the best of its judgment:

Provided that before taking action under this sub section the dealer shall be given a reasonable opportunity of being heard and, when a return has been submitted, to prove the correctness or completeness of such return.

In Hevea Crump Rubber (P) Ltd. v. Supdt. of Central Excise (1983) KLT 679) I said:

A speaking order is a pre-requisite before saddling the petitioner with the liability to pay Excise Duty. The respondents have merely asserted that the block or crump rubber produced in the petitioner''s factory is liable for excise duty under Tariff Item No. 68 of the Central Excise Tariff. This is not sufficient. It is for the Revenue to allege and substantiate, at least prima facie, as to why a particular item is taxable under a particular Tariff entry. The initial burden is on the Revenue to substantiate the assertion. The assessee is entitled to know and should be informed, the basis on which the Revenue proceeds to assess it, so that the opportunity given to the assessee will be real and effective and not illusory and make believe. Without such a real opportunity being accorded , if on mere assertions, further documents and papers are obtained and assessments are made and liability saddled on the assessee making it a "fait accompli", it will be hard, unjust and improper. Steps so taken will be violative of the principles of natural justice. The assessing authority will be acting arbitrarily and not fairly. That the statutory authorities invested with power, which when exercised will affect persons with civil consequences, should act fairly, reasonably and in a just manner, has been laid down repeatedly by courts.

(Emphasis supplied)

The principle aforesaid applies to all taxing statutes. In Testeels Ltd. Vs. N.M. Desai and Another, , the Court after an exhaustive review of the relevant case law and other legal literature inclusive of the decision of the Constitution Bench of the Supreme Court in Sardar Govindrao and Others Vs. State of Madhya Pradesh, observed:

We are of the view both on principle and on authority, that every administrative officer exercising quasi-judicial functions is bound to give reasons in support of the order he makes and since the conciliation officer was exercising quasi-judicial functions, he was bound to make a "speaking order" or in other words, to give reasons in support of the impugned order.

This decision was taken in appeal to the Supreme Court and in the decision, N.M. Desai Vs. The Testeels Ltd. and Another, , the Supreme Court affirmed the said decision. The Supreme Court observed:

The aggrieved Management challenged the said order on the score that a quasi-judicial power could not be exercised without complying with the obligation to pass a speaking order. The question, was considered at great length by a full Bench of the High Court of Gujarat to which it was referred. The conclusion arrived at was that the order was void because every order passed by a quasi-judicial authority should contain reasons on the face of the order. We are not persuaded that the proposition of law which appealed to the High Court is wrong.

In The Siemens Engineering and Manufacturing Co. of India Ltd. Vs. The Union of India (UOI) and Another, the Supreme Court held:

It is now 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. The rule requiring reasons to be given in support of an order i, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed. in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law.

In A. Ibrahim Kunju Vs. State of Kerala and Others, , after an exhaustive review of case law, Krishna Iyer, J. (as he then was) held at page 67:

opportunity (to explain) should be real and not ritualistic, effective and not illusory and must be followed by a fair consideration of the explanation offered and the materials available, culminating in an order which discloses reasons for the decision sufficient to show that the mind of the authority has been applied relevantly and rationally and without reliance on facts not furnished to the affected party. The question merely is, in all conscience have you been fair in dealing with that man? If ''you have been arbitrary, absent-minded, unreasonable or unspeaking, you cannot deny that there has been no administrative fair play.

At page 68, the learned Judge held:

Quasi-judicial obligation involves giving of reasons for orders, since justice is not expected to wear the inscrutable face of a sphinx.

And concluded at page 69:

It is thus clear that failure to give reasons ordinarily voids the order.

Bearing in mind the relevant statutory provision quoted above and also the principles of law laid down by courts, let us examine the legality of the proceeding impugned in this O.P. By Ext. PI, pre-assessment notice dated 13-5-1982 the respondent merely said:

Umbrella ribs, tubes and other parts from 16-9-80 will fall under item No. 121 of the 1st Schedule and not therefore liable to be taxed @ 8% and will be taxed accordingly.

In Ext. P2 dated 21-5-1982 fairly detailed objections were filed by the petitioner. In paragraph 4 he has stated as to why the disputed items will not fall and cannot be taxed under item No. 121 of the I Schedule of the K.G.S.T. Act. In effecting the order of assessment, Ext. P3, dated 24-5-1982, the respondent said:

The objection raised with respect to the rate of tax proposed to be adopted for umbrella tubes, ribs etc. have been considered. The item fall under entry 121 of the 1st Schedule and hence the turnover from 16-9-80 are liable to be taxed @ 8%.

On a mere perusal of the above, it will be seen that Ext. PI pre-assessment notice is only an assertion. It was merely a meaningless ritual followed in this case. Pre-assessment notice has a great purpose to serve. It is informing the assessee the basis or the reason as to why he is going to be assessed in the manner proposed. No reason is stated as to why and how it is stated that the disputed items are turnovers which will come under entry No. 121 of the 1st Schedule, so as to afford the assessee a real, effective and meaningful opportunity to offer his objections. Be that as it may, notwithstanding, the detailed objections and reasons given by the assessee-petitioner in Ext. P2 as to why the disputed items will not attract levy of sales-tax under entry 121 of the 1st Schedule in Ext. P3, the assessing authority disposed of the objections in a laconic way. No reason is given as to why the objections raised by the assessee are not acceptable. It is not evident as to whether the assessing authority applied his mind at all to Ext. P2 objections. The objections were rejected or disposed of in an arbitrary or mechanical fashion. Ext. P3 is not a speaking order. There was only a pretence of adverting to the objections raised in Ext. P2. The respondent has failed to act "fairly" in the matter. In view of the principles laid down in the decisions referred to above, I am of opinion that Ext. P3 order has been passed arbitrarily, mechanically and in violation of the principles of natural justice. It is illegal and void. I hereby declare it so.

For another and different reason also, Ext. P3 order is totally without jurisdiction. There was excess amount under sur-charge in the sum of Rs. 7920.26. The assessment was for the year 1980-81 (vide year ending 31-3-1981) and the order was passed on 24-5-1982. The above excess amount was adjusted for the year 1983-84, a period yet to commence. At the time of Ext. P3 order, it is anybody''s guess whether the petitioner will carry on ''business'' at all, in the subsequent year or that the petitioner or the transactions effected by him, will be exigible to sales-tax. Even without any further notice or consent from the petitioner, the assessing authority unilaterally adjusted the amount due towards refund under sur-charge, for the year 1983-84. Under what provision of law such adjustment was made or could be made, is not clear., When repeatedly questioned, neither the Senior Government Pleader nor the particular assessing authority, nor the Deputy Commissioner of Sales-tax Central Zone who were present in court, were able to point out any statutory provision or authority of law for the assessing authority to make such adjustments. The adjustment made was totally unauthorised and ex facie without jurisdiction. It is really an instance of abuse of power by the statutory; authority - the 1st respondent. When an order of statutory authority is totally unauthorised, illegal and without jurisdiction and ex facie the order impugned is an instance of abuse of power this court will not countenance, the plea that petitioner has got an equally efficacious remedy provided by the statute. On this ground also, the resort to this Court under Article 226 of the Constitution is justified and Ext. P3 deserves to be nullified.

The learned Government Pleader, on behalf of the respondent, placed before me the original files. It is seen that the draft assessment order, contained at pages 179-182, do not contain the adjustment aforesaid. But, in the carbon copy of the assessment order, seen at pages 185 to 187, at page 187 (and again at p. 191) there is an entry in writing, in ink, regarding the adjustment - "adjusted to 1983-84". So also at page 195 the notice of refund order relating to sur-charge, dated nil, mentions that the excess of sur-charge of Rs. 7920.26 is adjusted to 1983-84 and signed by the same officer - pages 195 and 197. It is difficult to believe, that the assessing authority, was unaware of the entry made in the final assessment, to the effect that the adjustment of the excess sur-charge was made for the 1983-84. In view of the specific, writing seen at pages 187 and 191, to the effect "Adjusted to 83-84", when the assessment is made for the year 1980-81, I am not persuaded to accept the plea of ''"mistake", put forward in the belated affidavit filed by the assessing authority dated 16-6-1984. The same officer has signed the refund voucher undated, available at pages 195 and 197. Since that particular entry in the handwriting was not seen in the draft manuscript assessment order, it is a matter which requires investigation as to how in the final typed order, this adjustment was inserted or appeared as is seen at pages 187 and 191 of the files. I also enquired as to whether this "mistake" was noted by the Deputy Commissioner of Sales-tax (Zone) Ernakulam to whom a copy is seen marked as mentioned at pages 187 and 191 of the files. Mr. Karunakara Panicker, Deputy Commissioner of Sales-tax, who appeared in court, to render assistance in the matter, categorically submitted that the copy of the order is not seen received by the Deputy Commissioner of Sales-tax. (Zone) Ernakulam, as seen at pages 187 and 191 of the files in spite of detailed verification. If the copy of the assessment order was received by the Deputy Commissioner of Sales-tax (Zone), at least, he would have been alerted about the patent unauthorised adjustment made by the assessing authority, and would have invoked S. 35 of the Act to set right the unauthorised adjustment. Indeed, I should say, if the Deputy Commissioner of Sales-tax (Zone) came to know or was appraised of the matter, it was his duty to exercise the suo motu power of revision vested in him u/s 35 of the Act. As to why the copy of the assessment order as specified at p. 187 and 191 of the files was not sent or received by the Deputy Commissioner of Sales-tax (Zone) Ernakulam, is a matter which requires investigation and appropriate action.

In the result I quash Ext. P3 order of assessment and also Ext. P4 consequential notice of demand. I direct the assessing authority to refund the excess surcharge amount specified in Ext. P3 order - Rs. 7920.26 - within one month from today. The O.P. is allowed with costs. In the way, in which the adjustment has been made as detailed : above, I am of opinion that this is a matter in which the Deputy Commissioner of Sales-tax, (Zone) Ernakulam, should make an investigation into the matter bearing in mind the observations made hereinabove and submit a detailed report to the Board of Revenue (Taxes) within six weeks from today, explaining the position for further action, as the Board of Revenue (Taxes) deems fit to adopt in the facts and circumstances o the case. I should record my appreciation for the assistance rendered by the Senior Government Pleader Mr. N. N. Divakaran Pillai and the Deputy Commissioner of Sales-tax (Zone) Ernakulam, Mr. Karunakara Panicker and for having placed fairly all the available materials before court.