Khagaria Refinery vs The State of Bihar and Assistant Commissioner of Commercial Texes

Jayanandan Singh, J.—Petitioner, a small scale industry, has moved this Court challenging a notice issued to it by the Assistant Commissioner, Commercial Taxes, Khagaria Circle, Khagaria, in purported exercise of powers u/s 19(1) of the Act, to show cause against the proposed re-assessment of tax for the period 1987-88.

2 The facts of the case are that petitioner, which is a registered dealer under the provisions of the Bihar Finance Act, 1981, as well as under the Central Sales Tax Act, set up its unit for production and sale of paraphin wax as the main finished product and residual oil as by product from the raw material i.e. slack wax. Petitioner went into operation from 07.10.1987. For supply of raw material i.e. slack wax, it totally depended on the unit of the Indian Oil Corporation at Barauni. After it came into operation, petitioner filed its return for assessment under the Bihar Sales Tax Act, 1981, for the year 1987-88. It had sold its finished products outside the State also. Therefore, it filed its return for the said assessment year under the Central Sales Tax Act also. Accordingly, respondent-Assistant Commissioner, Commercial Taxes, assessed the petitioner for its liability of the Bihar Sales Tax as well as Central Sales Tax, and separate assessment orders were issued on 15.11.1991, in respect of liabilities of the petitioner annexed as Annexure-1 and 1/A, respectively. As per assessment order, total sale of the finished product of the petitioner in the financial year was to the tune of Rs. 7,33,225/-. The Assessing Officer found that, out of the same, inter-State sale was to the tune Rs. 6,13,225/-, whereas intra-State sale was to the tune of Rs. 1,20,2000/-. He held that on the raw materials, the dealer had paid the purchase tax to the tune of Rs. 16,206.05/-. The Assessing Officer found that on the sale of finished product within the State, petitioner was liable to pay 10% sale tax which came to the tune Rs. 1,200/- The Assessing Officer also found that in terms of notification S.O. No. 787, dated 10.09.1987, the petitioner was entitled for remission of the purchase tax paid by him on the raw materials from the sales tax paid by him on the finished product. Thus, he deducted Rs. 1,200/- of sales tax payable on the finished product from the purchased tax paid by the dealer to the tune of Rs. 16,206.05 paise and further held that the remaining amount of sales tax to the tune of Rs. 15,006. 05 paise shall be adjusted from the Central Sales Tax paid by the petitioner on the inter-State sale. By the next order, the Assessing Officer held the petitioner entitled for adjustment of its remaining purchased tax to the tune of Rs. 15,006.05 paise from the central sales tax paid by the petitioner on the inter-State sale in terms of notification S.O. No. 789, dated 10th September, 1987. In the order, on inter-State sale to the tune of Rs. 6,13,225/-, the Assessing Officer found that the petitioner was liable to pay central sale tax at the rate of 4% which came to the tune of Rs. 24,529/-. Therefore, the remaining amount of purchase tax of Rs. 15,006.05 paid was adjusted from the said amount and Rs. 9,522.05 paise was held payable by the petitioner in the form of central sales tax. Besides, in the two orders, a little penalty was also imposed against the petitioner for late filing of the return. The remaining amount, as assessed in the order, was promptly deposited with the respondents.

However, after more than a year, petitioner received notice issued under the signature of the Assessing Officer, vide Memo No. 664 dated 04.03.1993, Annexure-2 to the writ application. Notice mentions that the purchase tax paid by the petitioner on the purchase of raw materials in the financial year 1987-88 had wrongly been adjusted against the central sale tax which was not in accordance with notification S.O. No. 789 dated 10.09.1987. Therefore, petitioner was asked to appear for hearing on the date fixed u/s 19 (1) of the Act with all accounts ledger etc. This notice is under challenge in this writ petition.

The contention of the learned Counsel for the petitioner is that said notification, S.O. No. 789 dated 10th September, 1987 was issued by the respondents in exercise of powers u/s 23 of the Bihar Finance Act, 1981 which, inter alia, provides for adjustment of the amount of purchase tax, paid on the purchase of raw materials by the small scale industry of the State, which have been used in the manufacture of goods for sale in course of inter-State trade, from tax payable on the finished products. He submitted that, in fact, Section 22 provides for adjustment of purchase tax paid on the purchase of raw material from the tax payable on the sale of finished product within the State, whereas Section 23 provided for adjustment of purchase tax from tax payable on the sale of finished product in course of Inter-State trade. He submitted that this was by way of incentive intended to give impetus to growth of industrial activity in the State. He submitted that in exercise of power u/s 23(1) of the Bihar Finance Act, the State Government had issued notification, namely, S.O. 789 dated 10th September, 1987 and made the provisions of adjustment applicable in the State. He submitted that Section 22 or Section 23 exclusively provided for adjustment of sale tax paid on the raw materials from the tax payable on the sale of finished products. Therefore, he submitted that the assessment made by the Assessing Officer-Assistant Commissioner, by adjusting the central sale tax payable by the petitioner on sale of finished products from the purchase tax paid by him was correct. The Assistant Commissioner, therefore, had no basis under law to question the same and initiate a proceeding of re-assessment in exercise of powers u/s 19 (1) of the Act. Hence, he submitted that notice issued to the petitioner was issued on non est ground and, therefore, the same was fit to be quashed and any further proceeding initiated or held pursuant to the said notice was also fit to be quashed accordingly.

Learned Counsel for the respondents opposed the writ application justifying the notice issued to the petitioner. He submitted that as Section 23 was part of the Bihar Finance Act, 1981, it provides for adjustment of any tax payable under this Act only. He submitted that central sale tax was liability of the Central Government and the same could not be waived by the State Government by adjusting the said liability from any tax paid by a unit under the Bihar Sales Tax Act.

This Court has perused the materials on record and considered the submissions of the learned Counsel of the parties.

The issue in this case is confined to applicability of Section 23 of the Act on the inter-State sale of finished product by the petitioner to the tune of Rs. 6,13,225/- and its entitlement for adjustment of the same against tax paid by him on the raw materials in terms of notification S.O.789 dated 10.09.187. Notification S.O. 789 dated 10.09.1987 has been issued in terms of the provisions of Section 23 of the Act. Therefore, for easy reference, it is appropriate to reproduce Section 23 of the Act herein below:

Adjustment, set off, or refund of tax in certain cases.-(1) Where the State Government is satisfied that it is expedient to do so in the interest of industrial growth within the State, it may permit, by an order published in Official Gazette, any dealer, or class or description of dealers, who are running industrial units in the State of Bihar, to adjust the amount of tax paid on the purchase of raw materials which have been used for manufacture of goods for sale in course of inter-State trade against the tax payable under this part in such manner and subject to such conditions and restrictions as may be laid down in the order allowing permission.

(2) Where due to any reason it may not be possible to adjust the amount of tax paid on raw materials used for manufacture of goods for sale in course of inter-State trade in the manner specified in Sub-section (1), the State Government may, by an order published in Official Gazette, and subject to such conditions, restrictions, and manner, as may be laid down in the order permit the refund of the amount, if any, paid on purchases of such raw materials but not adjusted against the tax payable under this part.

From reading of Section 23 of the Act it is apparent that Sub-section (1) provides adjustment of the purchase tax paid on the raw materials, whereas Sub-section (2) provides for refund of the amount of purchase tax which cannot be found adjustable against tax payable. In the present case, the said Sub-section (2) is not relevant for the purpose of the case of the petitioner as no case for refund is claimed by it. Petitioner''s claim is that it is protected under Sub-section (1) of Section 23 of the Act read with notification S.O.789 dated 10th September, 1987.Sub-section (1) of Section 23 is an enabling provision. It enables the State Government to issue an order, to be published in Official Gazette permitting any dealer to claim adjustment of the amount of tax paid on the purchase of raw materials which have been used for manufacture of goods for sale in course of inter-State trade, against the tax payable under this part in such manner and subject to such conditions and restrictions as may be laid down in the order allowing permission. Apparently, in terms of the said enabling provision, notification S.O. 789 dated 10th September, 1987 has been issued by the State Government.

The question arises whether tax paid by a dealer against his liability arising under any other Act on the inter-State trade can also be adjusted by the Government against tax paid to the Bihar State by the dealer on purchase of raw materials as purchase tax. The language of Section 23 in this regard is important and has to be considered carefully. This section empowers the State Government "...to adjust the amount of tax paid on the purchase of raw materials which have been used for manufacture of goods for sale in course of inter-State trade against the tax payable under this part..." The words "against the tax payable under this part" are very significant and their import has to be considered by this Court for examining the claim of the petitioner for adjustment of his liability of central sales tax payable by him, against tax paid by him on the purchase of raw materials in terms of provisions of the Bihar Finance Act, 1981.

After careful consideration of the wordings of Section 23 of the Act, it appears to this Court that the Legislature has clearly intended to adjust the purchase tax paid by a dealer, only against tax payable by him under any of the provisions of the Bihar Finance Act contained in the part of the Act which contains this section also. Section 22 and Section 23 are almost identically worded except that Section 22 empowers the State Government to issue orders in the matter of tax payable on sale finished product in Bihar State itself whereas Section 23 deals with the tax payable on sale in course of inter-State trade. There is one significant difference in the wordings of two sections and for appreciation of the same, it is appropriate to reproduce Section 22 of the Act also hereinbelow:

Adjustment of tax in certain cases- Where the State Government is satisfied that it is necessary to do so in the interest of industrial growth, it may permit by an order published in Official Gazette, any dealer, or class or description of dealers, who are running manufacturing units in the State of Bihar, to adjust the amount of tax paid on the purchases of raw materials which have been used for manufacture of goods for sale within Bihar against the tax payable on sale of finished product in Bihar in such manner as may be laid down in the order allowing permission.

Comparing the two sections, it is significant to note that in Section 22 the words have been used as "against the tax payable on sale of finished product in Bihar", whereas in Section 23 it is mentioned as "against the tax payable under this part". Thus, it is clear that by inserting the words "under this part" in Section 23 of the Act, the Legislature clearly intended that, only tax payable under the Bihar Finance Act could be adjusted against the purchase tax paid by a dealer on the raw materials from any tax liability accruing against a dealer on sale of finished product in course of inter-State trade. Therefore, upon careful consideration of the provisions of the language of Section 23, this Court is of the opinion that the petitioner-dealer was not entitled for adjustment of his liability of central sales tax payable under the Central Sales Tax Act against the amount of purchase tax paid by him against the purchase of raw materials. Hence the assessment order as contained in Annexure-1/A and the said adjustment of liability of central sales tax against purchase tax paid by it was apparently in the teeth of Section 23 and against intention and purpose of notification No. S.O 789 dated 10th September 1987.

In this context it is also appropriate to notice that, perhaps in view of the limited scope of Sub-section (1) of Section 23 in mind, the Legislature, in Sub-section (2) thereof, empowered the Government also to issue orders allowing refund of amount of purchase tax, which may remain un-adjusted in terms of any order issued under Sub-section (1). The notification, S.O. No. 789, dated 10th September, 1987, does not cover this field and no other notification has been brought on record issued by the Government in terms of said Sub-section (2) of Section 23.

However, this Court is of the view that the writ petition is fit to be allowed on a different ground. Although submissions were not advanced by learned Counsel for the petitioner, but in the writ petition it has been pleaded that even if there was an error in the earlier assessment order, still Assessing Authority was not justified in re-opening the assessment by initiating a proceeding u/s 19(1) of the Act. It is clear that Section 19 (1) of the Act empowers an Assessing Authority to serve a notice on the dealer in respect of an escaped assessment and thereafter to proceed to assess or re-assess the amount of tax due from the dealer. For convenience, Section 19(1) of the Act is reproduced hereinbelow:

19(1) If upon information which has come into his possession, the prescribed authority is satisfied that reasonable grounds exist to believe that any turnover of a registered dealer or a dealer to whom grant of registration certificate has been refused under the third proviso to Sub-section

(2) of Section 14, in respect of any period has, for any reason, escaped assessment or any turnover of any such dealer or a dealer assessed under Sub-section (5) of Section 17 has been under-assessed or assessed at a rate lower than that which was correctly applicable or any deductions there from has been wrongly made, the prescribed authority may, subject to such rules as may be made by the State Government under this part, and

(a) within eight years of the expiry of such period, where the said authority has reasons to believe that the dealer has concealed, omitted or failed to disclose willfully the particulars of such turnover or has furnished incorrect particulars of such turnover and thereby returned figures below the real amount,

(b) within six years of the expiry of such period in any other case,

serve on the dealer a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 17 and proceed to assess or reassess the amount of tax due from the dealer in respect of such turnover, and the provisions of this part shall, so far as may be, apply accordingly as if the notice under this Sub-section was a notice under Sub-section (2) of Section 17:

Provided that the amount of tax shall be assessed or re-assessed after allowing such deductions as were permissible during the said period and at rates at which it would have been assessed had the turnover not escaped assessment or full re-assessment, as the case may be....

From a bare reading of Section 19(1) it is clear that power of the Assessing Authority to re-assess a dealer emanates from the keywords in the beginning of the section itself. The section starts with the words "upon information which has come into his possession". Thus, the Act provides that the source of exercise of this power by the Assessing Authority has to be an information which has come into his possession. Natural corollary of this is that the information which is sought to be relied upon by the Assessing Authority to reopen assessment for the purposes of realization of any further amount of tax for any particular financial year should not be available to him from before and should not have already come to his notice from before. The word "information" used in the said section fell for consideration before a Division of this Court in the case of Eureka Forbes Ltd. v. State of Bihar and Ors. reported in [2000] 119 STC 460. The Bench considered the wordings of Section 19(1) of the Act and its import and concluded as follows:

...(i) A mere change of opinion and/or second thought by any authority on the same set of facts and materials on record would not constitute "information" u/s 19(1) of the Bihar Finance Act, 1981 ;

(ii) There must be some material and/or facts on the record which had not been taken into account at the time of original assessment, to make reassessment in terms with section 19 (1) of the Bihar Finance Act, 1981; and

(iii) Audit report" cannot constitute "an information", as enumerated u/s 19(1) of the Bihar Finance Act, 1981, for the purpose of reopening of assessment.

Thus, change of opinion or re-examination of the materials available on record and/or re-reading of the provisions creating liability on the dealer cannot be taken as "information" so as to empower an Assessing Authority to re-open the assessment and re-assess the dealer, for the same period and liability, in exercise of power under said Section 19 (1) of the Act. If it is so accepted, the said power of the Assessing Authority may become a constantly hanging sword on the head of the dealer as, with the change of office, there may often be change of views, opinions and interpretations of the materials available on record and legal provisions of the Act applicable in the case. It may also give liberty to the Assessing Authority to keep on re-opening assessments on grounds of mistakes and omissions. This clearly was not intended by the Legislature when it provides for such power to the Assessing Authority with the starting words "upon information which has come into his possession". This information or knowledge clearly has to come into notice of the Assessing Authority after the assessment was made and not already available and in his knowledge from before.

In the present case, it is clear that the Assessing Authority had exercised this power only in the light of the letter of the Commissioner of Commercial Taxes dated 19.01.1990, annexed with the counter affidavit of the respondents. This was only an opinion of the Commissioner of Commercial Taxes in respect of applicability of Section 23 which caused the Assessing Authority to issue notice to the petitioner in exercise of his power u/s 19(1) of the Act. This clearly is not covered by the expression "information which has come into possession". In the circumstances, this Court is of the opinion that the circumstances do not exist for exercise of power by the Assessing authority in terms of Section 19(1) of the Act necessitating the issue of notice and re-assessment. Hence, this Court finds the impugned notice issued to the petitioner as ultra vires the powers of the Assessing Authority and without jurisdiction.

As a result, the notice contained in Annexure-2 to the writ petition is quashed and the respondents are restrained from proceeding pursuant to the said notice and re-assess the petitioner in terms of Section 19(1) of the Act. From the order dated 08.07.1993, passed in the case, it appears that while admitting the writ petition, this Court though gave liberty to the respondents to proceed in the matter but restrained them from taking any coercive steps for realization of any amount pursuant to the fresh assessment. In the circumstances, if the respondents have proceeded with fresh assessment in terms of the said notice, the same shall also stand quashed.

The writ petition is thus allowed, but without order as to costs.

Sudhir Kumar Katriar, J.

I agree