K. Lakshmanaswami Chettiar and Sons vs State of Tamil Nadu

Sethuraman, J.—This is an appeal filed u/s 37 of the Tamil Nadu General Sales Tax Act, 1959, against the order of the Board of Revenue

dated 29th November, 1975. For the assessment year 1966-67, the assessee was assessed on a taxable turnover of Rs. 9,51,739.76 by an order

dated 12th January, 1968. While checking the accounts for 1970-71, it was found that the assessee had shown lesser purchases and sales by

undertotalling the purchases and sales in the ledger. On 17th March, 1972, the assessing authority issued a notice to the dealers in form XII to

produce their accounts for 1966-67 on 21st March, 1972. The assessee did not produce the accounts. The assessing authority again issued a

notice on 25th March, 1972, to produce the accounts. Again the assessee did not comply. In a further notice on 25th March, 1972, the assessing

authority wrote again saying that there was every reason to suspect that the turnover reported in form A-2 for 1966-67 did not represent the

correct turnover and that from the records of the subsequent assessment years, it was seen that the assessee had suppressed monthly Rs. 10,000

under taxable and Rs. 5,000 under exempted goods. Since the assessee had not produced the accounts to prove the correctness of the turnover

already reported, the assessing authority proposed to estimate the turnover that had escaped assessment and also to levy penalty. The proposed

addition to the turnover was Rs. 1,20,000 and the proposed levy of penalty was Rs. 500. The notice was despatched on 27th March, 1972, by

registered post and as shown by the acknowledgment received from the post office, the assessee got it on 3rd April, 1972. The assessee was

granted time up to 11th April, 1972, to give the reply to this notice. The assessee''s objection was that the revision of assessment was time-barred

on 31st March, 1972. The assessing authority rejected this contention and passed an order on 7th June, 1972, adding Rs. 1,20,000 to the

turnover and levying Rs. 4,500 as penalty.

The assessee appealed to the Appellate Assistant Commissioner, who held that the notice proposing revision having been served only on 3rd

April, 1972, the revision itself was beyond the period of limitation of 5 years prescribed u/s 16 of the Act. The Board considered that the order of

the Appellate Assistant Commissioner was not correct and required to be set aside and, therefore, took up suo motu revision proceedings. In

those proceedings the assessee''s objection was again that the reassessment was time-barred. After referring to some of the decisions on the point,

the Commissioner of Commercial. Taxes held that for the purpose of computing the period of limitation, it was enough if the proceedings were

initiated and that such proceedings need not have been completed before the expiry of the period prescribed u/s 16. The result was that the order

of the Appellate Assistant Commissioner was set aside and the order of the assessing authority restored. There is no discussion on the correctness

of the addition or on the quantum of the penalty levied.

The only point that arises in the present appeal is whether the assessing authority had power to pass his order dated 7th June, 1972, which is

beyond the period of 5 years.

Section 16(1)(a) of the Tamil Nadu General Sales Tax Act, 1959, provides:

Where, for any reason, the whole or any part of the turnover of business of a dealer has escaped assessment to tax, the assessing authority may,

subject to the provisions of Sub-section (2), at any time within a period of five years from the expiry of the year to which the tax relates, determine

to the best of its judgment the turnover which has escaped assessment and assess the tax payable on such turnover after making such enquiry as it

may consider necessary and after giving the dealer a reasonable opportunity to show cause against such assessment.

Sub-section (2) mentioned in Sub-section (1), extracted above, refers to the levy of penalty in a case where the assessing authority was satisfied

that the escape from assessment was due to wilful non-disclosure of assessable turnover by the dealer.

In Sales Tax Officer, Special Circle, Ernakulam v. Sudarsanam Iyengar & Sons [1970] 25 S.T.C. 252 (S.C.), the Supreme Court dealt with a

case where there was a revision of assessment under the Travancore-Cochin General Sales Tax Rules. Two assessment years were under

consideration in the said case. For the assessment year 1961-62, the Sales Tax Officer served the relevant notice in December, 1965. The period

prescribed was only 3 years from the end of the relevant assessment year. For the assessment year 1962-63, the time-limit expired by 31st

March, 1966. In the appeal before the Supreme Court, the Sales Tax Officer confined his contention only in relation to the assessment year 1962-

It was admitted that for the other year the proceedings had become time-barred. For the assessment year 1962-63, the question had to be

considered in the light of Rule 33 of the Rules framed under the Travancore-Cochin General Sales Tax Act. Rule 33, which is substantially similar

to Section 16, runs as follows:

Rule 33. (1) If for any reason the whole or any part of the turnover of business of a dealer or licensee has escaped assessment to tax in any year or

if the licence fee has escaped levy in any year, the assessing authority or licensing authority, as the case may be, subject to the provisions of Sub-

rule (2) may at any time within three years next succeeding that to which the tax or licence fee relates determine to the best of his judgment the

turnover which has escaped assessment and assess the tax payable or levy the licence fee in such turnover after issuing a notice to the dealer or

licensee and after making such enquiry as he considers necessary.

The Supreme Court held, in. construing the expression ""determine"" occurring in the rule, at page 255, as follows:

Our attention has been invited to the appropriate dictionary meaning of the word ''determine'' which is ''to settle or decide''-to come to a judicial

decision-(Shorter Oxford English Dictionary). It is suggested that the word ''determine'' was employed in Rule 33 with a definite intention to set the

limit within which the final order in the matter of assessment should be made, the limit being three years. We find it difficult to accept that in the

context of sales tax legislation the use of the words ''proceed to assess'' and ''determine'' would lead to different consequences or results. In this

connection the words which follow the word ''determine'' in Rule 33 must be accorded their due signification. The words ''assess the tax payable''

cannot be ignored and it is clearly meant that the assessment has to be made within the period prescribed. Assessment is a comprehensive word

and can denote the entirety of proceedings which are taken with regard to it. It cannot and does not mean a final order of assessment alone unless

there is something in the context of a particular provision which compels such a meaning being attributed to it. In ""our judgment despite the

phraseology employed in Rule 33 the principle which has been laid in other cases relating to analogous provisions in sales tax statute must be

followed as otherwise the purpose of a provision like Rule 33 can be completely defeated by taking certain collateral proceedings and obtaining a

stay order as was done in the present case or by unduly delaying assessment proceedings beyond a period of three years.

The result was that the Supreme Court confirmed the validity of the assessment even though the assessment was actually completed beyond the

period of three years mentioned in Rule 33.

This judgment of the Supreme Court was considered and applied in Anglo French Textiles Limited, Pondicherry v. State of Tamil Nadu

represented by the Deputy Commercial Tax Officer, Madurai W.P. Nos. 3939 to 3941 of 1971 decided on 14th March, 1972 (Madras High

Court). In that case, the assessment years under consideration were 1963-64, 1964-65 and 1965-66. As the assessee had not furnished the

return and as there was information to show that the assessee had purchased cotton from some dealers in Rajapalayam and that delivery of cotton

was effected in Rajapalayam itself during the year 1965-66, a notice was issued by the assessing authority on 11th September, 1968, requiring the

assessee to furnish particulars on or before 25th September, 1968, of the cotton purchases in the State of Madras between 1963-64 and 1967-

These particulars were furnished on 23rd September, 1968. After checking them, a pre-assessment notice was issued on 24th March, 1969,

proposing to fix the taxable turnover at a particular figure and also to levy a penalty for the assessment year 1963-64. This notice was served on

the assessee on 31st March, 1969. After obtaining time for filing their objections, the assessee objected in its letter dated 12th April, 1969, to the

proposal stating that the transactions were inter-State sales and they were not liable to pay sales tax. The assessee thereafter came before this

Court by filing writ petitions in so far as the notice related to the assessment years 1963-64 to 1965-66 on the ground that the assessing authority

had no jurisdiction to take any proceedings or pass any order u/s 16 of the Act after the expiry of a period of 5 years from the year to which the

tax related. In the counter-affidavit, it was contended that the pre-assessment notice was already issued prior to the period of five years and that,

therefore, the assessment could be completed at any time. These contentions were examined by this Court in the light of the decision of the

Supreme Court in The Sales Tax Officer and Another Vs. Sudarsanam Iyengar and Sons, . In the course of the arguments, reference was made to

Section 16(4) of the Act under which in computing the period of limitation, the time during which the proceedings for assessment or reassessment

remained stayed under the orders of a civil court or other competent authority is to be excluded. This Court pointed out as follows :

We are unable to accept the contention of the learned counsel that Section 16(4) in any way affects the construction placed by us on the provisions

of Section 16(1)(a). Section 16(4), in our opinion, is general in terms and it will apply also to cases of assessment u/s 12 and not merely to cases

where there was no assessment at all falling u/s 16(1)(a) and in all such cases the time during which the proceedings for assessment remained

stayed under orders of a civil court or other competent authority shall have to be excluded for computing the period of limitation for assessment on

the ''escaped turnover''. Further, under the scheme of the Act, whenever the legislature intended that the final order shall be passed within a

particular period, it was specifically provided so.

After referring to Sections 32 and 34 in this connection, it was pointed out as follows:

Section 16(4) in so far as it applies to proceedings initiated where there was no prior assessment, in our opinion, is a provision ex abundanti

cautela and does not in any way restrict or limit the scope of the power u/s 16(1)(a)...

For the foregoing reasons, no question of limitation could arise in respect of the assessment year 1963-64 where the pre-assessment notice has

been issued within the period of 5 years.

In the light of this decision, it follows that there is no substance in the contention of the assessee that the reopening of the assessment by the

assessing authority was bad in law, as the relevant notice was issued prior to the expiry of the time-limit. The Commissioner was thus justified in

accepting in principle the validity of the order of the assessing authority.

In the present case, the Appellate Assistant Commissioner in dealing with the appeal by the assessee against the reassessment proceedings

observed as follows :

Even on merits, the assessing authority has not checked the books of account and established a case of escapement of turnover. Without perusing

and verifying the books of account presumption of escapement of turnover is not sustainable. In view of the above discussions, the appellants are

entitled to succeed both on grounds of limitation and also on merits.

This order of the Appellate Assistant Commissioner is dated 26th January, 1973.

Subsequent to this order of the Appellate Assistant Commissioner, the Sales Tax Appellate Tribunal considered the assessee''s appeal for the

assessment year 1970-71, the assessment proceedings for which were really the genesis of the proceedings u/s 16. The Tribunal, after elaborately

examining the assessee''s contentions as regards the mistake in totalling, etc., reduced the turnover assessed for the assessment year 1970-71 and

also cancelled the penalty levied for that year.

The order of the Board in the present case came to be passed on 29th November, 1975. The Board has not considered either the conclusion

of the Appellate Assistant Commissioner on merits or the effect of the order of the Tribunal for the assessment year 1970-71. The Board has not

also considered as to whether the levy of penalty was actually called for on the facts herein. The order of the Board is purely restricted to the

consideration of the question of limitation. The question of merits of the assessment as well as the correctness of the levy of penalty would now

have to be considered by the Board.

In these circumstances, we restore the revision to the Commissioner so as to enable him to consider the appropriate addition to the turnover,

including the levy of penalty. The appeal is accordingly allowed in the sense that the matter is restored to the Commissioner for reconsideration of

the reassessment proceedings on merits. There will be no order as to costs.