Rajasthan Investment Corporation vs The Deputy Commercial Tax Officer

Ramakrishnan, J.—The petitioner in this petition filed under Article 226 of the Constitution for the issue of a writ of prohibition is the

Rajasthan Investment Corporation. The petitioner makes the following allegations in the affidavit appended to the petition. The petitioner carries on

business as a financier of hire-purchase transactions and motor vehicles. The nature of the transactions is to advance moneys on the security of

motor cars to people who want to purchase cars. But the transactions do not constitute sales within the meaning of the Madras General Sales Tax

Act and the petitioner is not a dealer as defined under that Act. Nevertheless on 11th May, 1964, the respondent, the Deputy Commercial Tax

Officer, Thyagarayanagar, issued a notice to the petitioner as below:

Messrs Rajasthan. Investment Corporation are doing the business of hire-purchase of automobiles. During the year 1958-59 they have had

transactions to the extent of Rs. 24,224. As the assessees are the first dealers in this State, they are liable to pay tax at 6 per cent. on the above

transactions. The tax amounts to Rs. 1,453-44.

The dealers should have filed a return in Form A-l showing their turnover for the year 1958-59 on or before 1st May, 1959. They failed to do so

and thereby committed an offence punishable u/s 45(2)(a) of the Madras General Sales Tax Act, 1959.

The dealers are hereby required to appear before me in my office at 10-30 a.m. on 18th May, 1964, and state why they should not be prosecuted

in the Court of the Sixth Presidency Magistrate for the said offence. If they are willing to have the offence compounded departmentally, by paying a

compounding fee of Rs. 2,908 they may state their willingness in writing on the stipulated date.

The petitioner contends that by the date of this notice more than five years had elapsed from the end of the year to which the transactions

related, that he could not be assessed to sales tax for the turnover even on the footing that the transactions were sales and that therefore the notice

asking him to show cause why he should not be prosecuted u/s 45(2)(a) of the Madras General Sales Tax Act is illegal and ultra vires, and it is

therefore necessary that a writ of prohibition should issue restraining the respondent from proceeding further in pursuance of the abovesaid notice.

There was also another allegation in the affidavit of the petitioner that even assuming the notice would be valid in other respects,, the failure to

submit a return, which is the main allegation in the notice, would fall u/s 46(1)(b) of the Madras General Sales Tax Act, 1959, and that section

provides a maximum composition fee of Rs. 1,000. The procedure of the respondent in treating the alleged contravention as falling u/s 46(1)(a) for

which the composition fee is fixed at a sum not exceeding Rs. 1,000 or double the amount of the tax recoverable, whichever is greater, is also a

ground vitiating the notice.

Learned counsel for the petitioner at the time of the hearing of the writ petition referred to a decision of a Full Bench of this Court in Public

Prosecutor v. V.M. Ramalingam Pillai [1958] 9 S.T.C. 510. That decision dealt with the scope of Section 16-A of the Madras General Sales Tax

Act of 1939, which is analogous to Section 48(2) of the Madras General Sales Tax Act, 1959, which states :

The validity of the assessment of any tax, or of the levy of any fee or other amount, made tinder this Act, or the liability of any person to pay any

tax, fee or other amount so assessed or levied shall not be questioned in any criminal court in any prosecution or other proceeding, whether under

this Act or otherwise.

In the view of the Full Bench, when a person is prosecuted u/s 16-A of the Madras General Sales Tax Act, 1939, it will not be open to him to

raise any objection, plea or contention which he could have raised before the authorities set up under the General Sales Tax Act, and it will, be

open to him to raise only those pleas, objections and contentions, which those authorities are precluded from entertaining. Learned counsel for the

petitioner argues that on the same reasoning, when the petitioner has to face a prosecution as it is proposed in the notice for having failed to submit

a return for the year in question, the criminal court would be debarred from'' examining his liability to be assessed to tax including the question

whether he is a dealer and whether the transactions in which he took part were sales or not. Without an examination of those questions his liability

to be convicted cannot be determined. For the aforesaid reasons it is urged before me by the learned counsel for the petitioner, that the proposal

to prosecute him cannot be sustained, because by reason of the principles laid. down in the decision cited above, the criminal court will be

precluded from considering all the defences, which the petitioner wants to rely in support of his action in having failed to submit a return. Per contra

the learned Government Pleader submits that the decision in Public Prosecutor v. V.M. Ramalingam Pillai [1958] 9 S.T.C. 510 as well as the

principles laid down in Section 48(2) of the Madras General Sales Tax Act, 1959 (Section16-A of the Madras General Sales Tax Act, 1939)

relate to completed assessments and can have no application to cases like the present one where there has been no completed assessment and

where, further, no assessment may not at all be possible to be made in view of the lapse of time. No doubt the Full Bench has referred at page 527

to the difficulties, which the Magistrate might be faced with, if he is asked to consider about the propriety of an assessment at a trial where he is

bound to follow the rules of the Evidence Act, but, on the other hand, the authorities set up by the Sales Tax Act are persons who may be

presumed to have acquired, by sheer experience, proficiency and skill in making estimates and computations requisite to arriving at a reasonable

figure, whereas the Magistrates do not usually have the training or facilities for the purpose. These observations must be considered in the context

of a completed assessment, because we find earlier in the same judgment at page 519, the observations that where tax is determined after notice to

the assessees, it is not repugnant to rules of natural justice to provide that the validity of assessment shall not be questioned at the stage of

realisation of the tax, and that the provision in Section 16-A of the Sales Tax Act is analogous to the rule which precludes the judgment-debtors

from putting forward at the stage of execution of a decree, defences that were open to them in the suit itself. On the other hand, there is another

Full Bench decision of this Court of a much earlier date relating to the prosecution under the Local Boards Act, in Pilla Ramaswami Vs. President,

Taluq Board, where the Full Bench has held :

When a Local Board moves a Magistrate u/s 221 of the Madras Local Boards Act, 1920, to recover a penalty imposed u/s 164(1) of that Act for

alleged encroachment on land belonging to the Board, the defaulting party can plead that there was no encroachment at all, and the Magistrate can

go into the question whether the alleged encroachment was true and therefore justified the imposition of the penalty.

In a decision given by me in Public Prosecutor v. Ramachandra Chettiar (1966) 2 M.L.J. 446 it was held that the provision of a time-limit of five

years for assessing escaped turnover, cannot be relied upon as an automatic bar for a prosecution u/s 45(2) of the Act for an offence of wilful

submission of a false return in respect of a period prior to five years. Even in such circumstances a prosecution can be maintained but it will be for

the prosecution to adduce data from which the criminal court could come to the inference that the return submitted by the dealer was false or

inaccurate.

But in the circumstances of this case it appears to me that it is unnecessary to decide on the question thus propounded, whether by reason of

Section 48 (2), the proposed prosecution should be struck down as not maintainable, because more than five years had elapsed from the date to

which the alleged return relates, and because there is no actual assessment involving a determination by the authorities of the Sales Tax

Department, that the petitioner''s transactions are sales and the petitioner is a dealer under the Sales Tax Act. The reason is this. u/s 46(1)(a)

relating to the composition of offences the prescribed authority is required to give to the person who has committed or is reasonably suspected of

having committed an offence under this Act an option to pay within a specified period by way of composition of such offence, where the offence

consists of the failure to pay, or the evasion of any tax recoverable under the Act, in addition to the tax so recoverable, a sum of money not

exceeding one thousand rupees or double the amount of the tax recoverable, whichever is greater. It is under this section that in the notice now

impugned the petitioner has been directed to state his willingness in writing before the stipulated date to pay the compounding fee of Rs. 2,908 in

lieu of prosecution for the offence u/s 45(2)(a) of the Act. The learned Government Pleader represents that this amount has been arrived at on a

computation under the Sales Tax Act, of the tax which the petitioner might be liable to pay treating the alleged hire-purchase transactions as sales.

In other words, the composition fee is fixed with reference to Section 46(1)(a) of the Act. It is obvious that Section 46(1)(a) of the Act refers to

cases of completed assessment where the assessee has either failed to pay the tax levied or has done something which amounts to evasion of the

payment of the tax, which is recoverable under the Act. That this should be the meaning of Section 46(1)(a) will also be clear from the provision in

that section, that the composition will be in addition to the tax recoverable. But in the present case there is no question of an assessment having

been completed, and therefore, there is no fixing of an amount of tax as recoverable. Therefore it will be totally inappropriate as well as illegal to

resort to Section 46(1)(a) for determining the amount of composition fee payable in lieu of prosecution. The appropriate provision must be the

residual provision contained in Section 46(1)(b) which fixes a maximum of Rs. 1,000 for the composition.

As regards the further question whether the notice is vitiated because a wrong provision of law for fixing composition fee is mentioned therein, it

appears to me that the petitioner might be willing to pay a lesser amount of Rs. 1,000 and avoid the prosecution, but where an amount of

composition fee, which is totally illegal and which is far in excess of what the law permits, has been proposed to be imposed on him in lieu of

prosecution, he will be greatly prejudiced. I am of opinion that the petitioner''s submission is right, and the impugned notice, which contains as an

essential ingredient, . a proposal to levy composition fee far in excess of what the statute has prescribed as maximum, must be struck down as

illegal. The learned Government Pleader refers to a recent decision of Venkatadri, J., in Writ Petition No. 632 etc. of 1963, Since reported as K.J.

Lingam and Ors. v. Joint Commercial Tax Officer, Mount Road Distrion, Madras and Ors. [1967] 19 S.T.C. 349 where the learned Judge has

made the observation that a proceeding for composition fee u/s 46 will give rise to a revision u/s 33 and that the petitioner will have an alternative

remedy of revision. But since in the present case the direction in the notice appears to be patently illegal and without jurisdiction, the remedy now

sought by way of a writ can be made available to the petitioner. Therefore the rule nisi is made absolute, and the respondent will be restrained from

proceeding further with the notice in its present form. As mentioned already, I am not expressing any opinion in this case on the further question

raised earlier as to whether, in the absence of a completed assessment, a notice for prosecution for non-submission of a return u/s 45(2)(a) can be

maintained or not. There will be no order as to costs.