Pullicar Mills Ltd. vs Deputy Commercial Tax Officer, Tiruchengode and Others

Swamikkannu, J.—This is a petition under article 226 of the Constitution, for the issue of a writ of certiorarified mandamus, calling for the

records from the third respondent in his B.P.Rt. No. 4145 of 1980, and to quash the order of the third respondent therein dated 20th November,

1980 and to direct the third respondent to dispose of the revision petition according to law. In the affidavit accompanying the writ petition, it is

stated by one Thiru. Krishnaraj, one of the directors of the petitioner-mill, that the petitioner was assessed by the first respondent, the Deputy

Commercial Tax Officer, Tiruchengode. The method adopted for the assessment was as contemplated by sub-rules (2) to (7) of rule 18 of the

Tamil Nadu General Sales Tax Rules (hereinafter referred to as ""the Rules""). The petitioner was enjoying the facility of filing A-2 returns and paying

tax on monthly turnover basis as per the said rules. The petitioner was complying with the conditions stipulated by the said rules scrupulously till the

assessment year 1976-77. Due to recession in the textile mill industry and due to labour unrest during the assessment year 1976-77, the petitioner-

mill was unable to pay the tax for some months within the time stipulated as per sub-rule (2) of rule 18. When the A-2 returns for those months

were not filed in time, the first respondent did not proceed as per the mandatory provision in sub-rule (4). Without making an enquiry as stipulated

in rule 12, he determined the turnover for those months separately to the best of his judgment and provisionally assessed the tax payable for each

of those months immediately after the due dates and, without serving a notice in form B-2 and giving an opportunity to the petitioner to pay the sum

demanded within 21 days from the date of service of such notice, raised the demand. The penalty in terms of section 24(3) of the Act is imposed

only when the amount of tax is not paid within 21 days as contemplated above. After the close of the year, the first respondent made the final

assessment for the assessment year 1976-77 by his order dated 23rd March, 1978 and after deducting the tax already paid, i.e., Rs. 10,10,181, a

demand notice in form B-3 was issued for the balance of Rs. 1,687 which the petitioner paid within the time stipulated in the notice. While so, even

before that on 18th March, 1978, the petitioner was served with an order imposing a penalty u/s 24(3) of the Act for the belated payment of the

tax. The amount demanded by way of penalty was Rs. 9,926. The petitioner preferred a revision to the second respondent contending that the

penalty in terms of section 24(3) could be imposed only if the amount of tax was not paid within the time stipulated. But the second respondent

dismissed the revision stating that section 24(3) was mandatory and hence no interference was called for with the assessment and imposition of

penalty. A further revision to the third respondent also was dismissed by the third respondent observing that the payment of penalty u/s 24(3) was

mandatory and further, the question of preferring a revision did not arise. The order of the third respondent confirming the orders of the second and

the first respondents were illegal according to the petitioner and are also untenable constituting errors on the face of the record, and failure to

discharge the statutory obligation under the Act.

Mr. V. Srinivasan, learned counsel for the petitioner, contended that the order imposing penalty u/s 24 of the Act is subject to a revision u/s 33

of the Act to the Deputy Commissioner and a further revision to the Commissioner of Commercial Taxes u/s 35. The third respondent therefore

erred in holding that no revision would lie. The third respondent was in error in stating that a demand u/s 24(3) was not an order or proceedings

under the Act. The finding of the third respondent that penalty u/s 24 was automatically attracted and the levy was mandatory, is another erroneous

conclusion arrived at by the third respondent. The process of imposition of penalty is not automatic and it is incumbent on the assessing authority to

satisfy himself that the failure to carry out the statutory obligation on the part of the assessee was wilful and designed to evade tax. In this regard,

learned counsel for the petitioner relied on the decision reported in Thvl. Kathiresan Yarn Stores, Salem Vs. The State of Tamil Nadu, . The main

point stressed on behalf of the petitioner is that the penalty u/s 24(3) is not mandatory or automatic as considered by the third respondent, but is

subject to the discretionary exercise and the conclusion of the third respondent is repugnant to the provisions of the Act and the well-established

principles laid down by the Supreme Court reported in Hindustan Steel Ltd. Vs. State of Orissa, .

The decision in Sakthi Sugars Ltd. Vs. The Assistant Commissioner of Commercial Taxes, Central Assessment Circle I, Coimbatore and

Others, is relied on by the learned counsel for the petitioner for the proposition that rule 18(3) of the Rules, along with the monthly returns, is really

in the nature of self-assessment and if the liability to pay interest by way of penalty is fastened only in a case where the tax assessed is not paid

within the time specified therefore in the notice of assessment, there will be no question of any notice of assessment in a case which is governed by

rule 18(3) of the Rules and the provisions of section 24(3) of the Act cannot be attracted to such a case. This decision is also relied on for the

proposition that section 24(3) being a provision which creates a fiscal liability, must be strictly construed, and when the section refers to a notice of

assessment, that notice of assessment is the notice which is contemplated by section 12 of the Act read with rule 16 of the Rules which refers to

the making of final assessment and contemplates a positive Act on the part of the assessing authority calling upon the dealer to pay the tax which

has not been paid, and it is only if, in spite of such notice of assessment, the amount due is not paid, that the liability to pay interest u/s 24(3) of the

Act can arise. It was also held in the said decision that having regard to the plain terms of section 24(3), any failure on the part of the dealer to pay

tax payable under rule 18(3) along with the monthly return, will not automatically attract the liability u/s 24(3) of the Act. Thus, if the delay is 1

month and 10 days, the interest payable will not be for two months.

In the counter filed on behalf of the respondents, it has been contended as follows :

The allegations of the petitioner in paras 12 to 16, it is submitted that according to section 33 a revision before the Deputy Commissioner lies

against an order passed or proceeding recorded under the Act. The demand of penalty u/s 24(3) is automatic. All other allegations of the petitioner

are baseless and are legally unsustainable. Its is submitted that the levy of penalty is automatic on the belated payment of tax. The levy of penalty

u/s 24(3) was for the belated payment. It is submitted that there are absolutely no merits in the allegations of the petitioner in paragraphs 16 to 18

of the affidavit. As already submitted in the foregoing paragraphs, there is no option for any one for the levy of penalty u/s 24(3). The action of the

respondents is therefore legal and valid."" - (sic).

The points that arise for determination in the writ petition are :

(1) Whether the contention raised on behalf of the Revenue that a revision lies to the Deputy Commissioner u/s 33 and as such, the writ petition is

not maintainable, is to be upheld or not ?

(2) Whether the contention raised on behalf of the petitioner that the writ petition is maintainable and the point raised, viz., that in the case of self-

assessment section 24(3) is not automatically attracted and that opportunity ought to have been given to the petitioner is tenable, and whether the

notice has to be issued by the authorities to the petitioner and whether such a notice is mandatory or not ?

So far as the first point is concerned, it is relevant to note that Mr. V. Srinivasan specifically submit that the remedy available with the third

respondent had been exhausted by the petitioner and it is only after exhausting that remedy under the enactment, the petitioner has come forward

with this writ petition. Therefore, this writ petition is maintainable under the writ jurisdiction under article 226 of the Constitution.

As regards the second point, it is submitted by the learned counsel for the petitioner that the petitioner was assessed on the basis of self-

assessment from the inception and that for the relevant period, all of a sudden, the authorities concerned have chosen to serve a demand notice

without previously issuing a notice under rule 18(3) of the Rules. In paragraphs 3 of the counter-affidavit it is stated that sub-rule (4) of rule 18

contemplates that if no return is submitted within the time or if the returns submitted appear to be incorrect and incomplete, the assessing authority

is authorised to hold an enquiry and determine the turnover to the best of judgment, and assess the tax and issue a notice in form B-2 to the dealer.

In the instant case, it is seen that this position which is correctly stated as one of the contentions of the Revenue had not been complied with.

Therefore, when it is common ground that no enquiry had been conducted as per rule 18(4) of the Rules, necessarily the order that had emanated

without such an enquiry being held, is certainly not in accordance with law and as such had necessarily to be quashed. Therefore, the order sought

to be quashed is hereby quashed. The writ petition is allowed. The amount paid by way of penalty, viz., Rs. 9,926, is directed to be refunded to

the petitioner herein, since the procedure to be followed had not been followed and since it is the basic principle of procedural law that an

opportunity as per the provisions has necessarily to be given to the aggrieved person and before issuing the notice as contemplated under rule

18(4) the enquiry conducted and the impugned order passed are all rendered a nullity. In the circumstances, there will be no order as to costs.

Writ petition allowed.