State of Kerala vs Sri. P.D. Shaju

J. Chelameswar, C.J.—Aggrieved by the order dated 27th September, 2007 of the Kerala Agricultural Income Tax and Sales Tax Appellate Tribunal in Rectification Petition in T.A. No. 289 of 2006, the State of Kerala filed the present Revision.

The facts are as follows: The sole Respondent is an Assessee and a registered dealer under the provisions of the Kerala General Sales Tax Act, 1963. The Respondent is carrying on business in Jewellery. Section 5 of the Act stipulates levy of tax on every dealer whose total turnover exceeds a particular limit in an year. It further stipulates rate of tax with reference to various categories of dealers and various items of merchandise. u/s 5(1), it is stipulated that in the case of goods specified in the First or Second schedule, the dealer is liable to pay tax on the total turnover at the rates specified in the corresponding schedule against the goods and to be collected at the points specified in the schedule. The Respondent, admittedly is liable to be assessed in accordance with Section 5(1) of the Act read with Entry 75 of First Schedule of the Act.

Section 5D of the Act, prescribes the Levy of Additional Sales Tax, the relevant portion of which is extracted below:

5D. Levy of Additional Sales Tax: The tax payable u/s 5 and Section 5A shall be increased by an additional sales tax at the rate of fifteen per cent of the tax payable under the said sections....

However u/s 7 of the Act, dealers in gold or silver ornaments or wares are given option to be taxed in accordance with the said Sub-section instead of going through the normal process of assessment prescribed under the Act. Section 7, (in so far as it is relevant for the purpose of the case) is extracted below:

Payment of tax at compounded rates: -(1) Notwithstanding anything contained in Sub-section (1) of Section 5, (a) any dealer in gold or silver ornaments or wares, may, at his option instead of paying tax in accordance with the provisions of that Sub-section pay tax at two hundred percent of the tax payable by him as conceded in the return or accounts for the immediate preceding year or the tax paid for the immediate preceding year whichever is higher.

For the assessment year 2001-02, the Respondent opted to be assessed in accordance with the provisions of Section 7(a) of the Act. The tax liability of the Respondent was assessed by an order dated 05.10.2002. While making such assessment, the revision Petitioner failed to levy and collect the additional tax contemplated u/s 5D. The assessment became final.

However, the revision Petitioner realised the mistake committed by them in not levying the additional sales tax u/s 5D of the Act. Therefore, they issued notice dated 29.11.2005, invoking Section 43 of the Act. Section 43 of the act authorises either the assessing authority, appellate or revisional authority to rectify any error apparent on the face of the records. Such a rectification is permissible either on an application or suo motu by the authorities. However, such an exercise is permitted within a period of three years from the date on which, the order, which is proposed to be rectified, is passed. Section 43 , in so far as it is relevant for the purpose of the case, reads as follows:

Power to rectify any error apparent on the face of the record: (1) an assessing authority or an appellate or revising authority (including the Appellate Tribunal) may, on application or otherwise, at any time within three years from the date of any order passed by it, rectify any error apparent on the face of the record.

The Respondent objected to the proceedings on the ground that it is barred by limitation (since the notice issued is clearly beyond the period of limitation). The revision Petitioner accepted the objection of the Respondent and dropped the proceedings. However, the revision Petitioner initiated fresh proceedings invoking Section 19 of the Act and a notice was issued on 04.02.2006.

Section 19 of the Act, in so far as it is relevant for the purpose of the case, reads as follows:

Assessment of escaped turnover: (1) Where for any reason the whole or any part of the turnover of business of a dealer has escaped assessment to tax in any year or has been under assessed at a rate lower than the rate at which it is assessable or any deduction has been wrongly made there from, the assessing authority may, at any time within five years from the expiry of the year to which the tax relates, proceed to determine to the best of its judgment the turnover which has escaped assessment to tax or has been under-assessed or has been assessed at a rate lower than the rate at which it is assessable or the deduction that has been wrongly made and assess the tax payable on such turnover after issuing a notice on the dealer and after making such enquiry as it may consider necessary.

Provided that before making an assessment under this Sub-section the dealer shall be given a reasonable opportunity of being heard.

The Respondent contested the legality of the proceedings u/s 19. But by order dated 18.02.2006, the revision Petitioner determined that the Respondent is liable to pay additional tax u/s 5D. Aggrieved by the same, the Respondent carried the matter in appeal before the Deputy Commissioner which was dismissed by order dated 20.05.2006. The Respondent carried the matter in a further appeal before the Tribunal. Initially, the appeal was dismissed by order dated25.11.2006. However, the Respondent moved a further application invoking Section 43 of the Act which was allowed by the order under Revision.

The learned Government Pleader argued that the Tribunal, in so far as it concluded that Section 19 could not have been invoked by the revision Petitioner herein in the facts and circumstances of the case, is not legally tenable. Secondly, the learned Government Pleader argued that irrespective of the conclusion reached by the Tribunal on the tenability of the proceedings u/s 19 of the Act, the Tribunal went beyond its jurisdiction u/s 43 in embarking upon such an enquiry, and as such, the enquiry is only permissible in inappropriate application for review of the order dated 25.11.2006 under the provisions of Section 39(7) of the Act.

Section 19 authorises assessment of tax liability of a dealer in three contingencies:

(i) where the whole or any part of the turnover of business of a dealer escaped assessment to tax in any year; or

(ii) such turnover has been under assessed at a rate lower than the rate at which it is assessable ; or

(iii) in making any assessment, any deduction has been wrongly made from such turnover.

On the admitted facts of the case on hand, no part of the turnover of the Assessee escaped assessment to tax. As already noticed, it is only an additional tax assessable u/s 5D, was not assessed by the revision Petitioner at the time of the original assessment proceedings. Nor is it a case where the assesssee was assessed at a rate lower than at which it is assessable. It was a simple lapse on the part of the Department in applying the law to the undisputed facts of the case. In our opinion, the order under revision, rightly came to the conclusion that invocation of Section 19 by the revision Petitioner in the factual context of the case, is impermissible. We may also mention herein that the learned Counsel argued that the failure on the part of the Department to invoke Section 5D, while making the assessment of the tax liability of the Respondent for the period 2001-02, is a contingency falling under second of the above mentioned contingencies which enabled the Department to invoke Section 19 of the Act. Assuming for the sake of argument that the language of Section 19 is susceptible to suchan interpretation, the interpretation such as one placed by the Tribunal, in our opinion, cannot be said to be wholly unreasonable or perverse. The well established principle in tax law is that where the statute is susceptible of two interpretations, an interpretation which unfavorable to the tax payer is to be preferred, unless there are other compelling reasons to avoid such a preference. In the facts and circumstances of the case and in view of the language of Section 19, we do not see any reason to depart from the normal rule of the interpretation of tax law.

The second submission is that the Tribunal ought not to have entertained the application u/s 43 of the Act as the exercise such as the one undertaken by the Tribunal (vide order under Revision), is one which falls squarely within the scope of ''review'' u/s 39 of the Act. We reject the submission. It is already noticed that Section 39(7)* authorises review of any order passed by the appellate Tribunal only on the basis of discovery of new and important facts. In the instant case, the Respondent didn''t seek review of the earlier order of the Tribunal on the basis of'' discovery of any new facts''. The specific case of the Respondent is that though they pleaded before the Appellate Tribunal that Section 19 of the Act is not available for the revision Petitioner for making the belated assessment of the liability of the Respondent u/s 5D, the submission was not (admittedly) considered by the Appellate Tribunal when it passed the order on 25.11.2006. Therefore, as rightly contended by the Assessee, it is squarely a case falling u/s 43, i.e., the case of rectification of an error apparent on the face of the records.

We may also examine the following two decisions relied upon by the learned Government Pleader:

(i) ILR 2010 (Ker) 699 Joy Alukkas v. State of Kerala. It was a case where the Assessee who was also carrying on business in gold jewellery opted for the procedure u/s 7 of the Act. While exercising such option, the Assessee, who had three branches in the State of Kerala, chose to offer his turnover for assessment u/s 7 of the Act only with reference to two of the three branches. Initially, the assessing authority accepted such an offer and assessed the liability. With reference to third branch, the Assessee filed separate return. The Deputy Commissioner, subsequently noticed that such a procedure adopted was not permissible under the Scheme of the Act and therefore initiated proceedings u/s 35 of the Act. It was in the said context, a Division Bench of this Court opined as follows:

In other words, even if there is a mistake or omission in the approval granted by the assessing officer, it is within his powers to modify such order and demand the tax escaped under the compounding scheme in regular assessment or later by revising assessment u/s 19(1) . The power of the Deputy Commissioner u/s 35, of course, can be exercised in respect of any order passed by the assessing officer which is prejudicial to the interest of the revenue.

We are of the opinion that the reliance placed on the said decision is wholly misplaced. First of all the scheme and language of Section 19 has not been the subject matter of discussion in the said judgment. Secondly, the issue before the Bench was with regard to the scope of power of the Deputy Commissioner u/s 35 of the Act. Therefore, we are of the opinion that the said decision does not in any way advance the case of the revision Petitioner.

Coming to the second decision Deva Metal Powders Pvt. Ltd. Vs. Commissioner, Trade Tax, U.P., a matter arose under the Uttar Pradesh Sales Tax Act, 1948. Section 22 of the said Act, authorises rectification of the mistakes. The relevant portion of the Section reads as follows:

Rectification of mistakes: (1) Any officer or authority, or the Tribunal or the High Court may, on its own motion or on the application of the dealer or any other interested person rectify any mistake in any order passed by him or it under this Act apparent on the record within three years from the date of the order sought to be rectified.

Section 22 authorises rectification of any mistake apparent on the record, while the Kerala Act authorises rectification of any error apparent on the face of the record. When dealing with the interpretation of Section 22, the Supreme Court held as follows:

A mistake which can be rectified u/s 22 is one which is patent, which is obvious and whose discovery is not dependent on argument or elaboration. In our view rectification of an order does not mean obliteration of the order originally passed and its substitution by a new order. What the revenue intends to do in the present case is precisely the substitution of the order which according to us is not permissible under the provisions of Section 22 and, therefore, the High court was not justified in holding that there was mistake apparent on the face of the record. In order to bring an application u/s 22, the mistake must be "apparent" from the record. Section 22 does not enable an order to be reversed by revision or by review, but permits only some error which is apparent on the face of the record to be corrected.

In our opinion, the said judgment is also of no application in the context of the present controversy. The issue before us is not whether the discovery of mistake depends upon elaborate argument. As already noticed, a specific ground raised by the Assessee was not considered by the Tribunal earlier while disposing of the appeal of the Assessee. In our opinion, there are no fixed rules governing the scope of the jurisdiction either to review an order or correct mistakes or ''errors apparent'' on the face of record. The scope of the jurisdiction, in our view, depends on the language of the provision conferring the jurisdiction and the over all scheme of the enactment under which such a provision is made. For example, Section 114 of the CPC which confers the jurisdiction on the civil Courts to review its judgments. It does not speak of any error or mistake. On the other hand, Order XLVII Rule 1 CPC Provides as follows:

Application for review of judgment.- (1) Any person considering himself aggrieved

(a) by a decree or order, from which an appeal is allowed, but from which no appeal has been preferred,

(b) by a decree or order, from which no appeal is allowed, or

(c) by a decision on a reference from a Court of Small Causes,

and who, from the discovery of new and important matter or evidence which, after the exercise of due diligence, was not within his knowledge or could not be produced by him at all the time when the decree was passed or order made, or on account of some mistake or error apparent on the face of the record or for any other sufficient reason, desires to obtain a review of the decree passed or order made against him, may apply for a review of judgment to the Court which passed the decree or made the order.

In our view, the expression "or for any other sufficient reason" is important and indicates that the power of review is not confined only to the errors apparent on the face of the record. But in a case like the present one where the power to review is limited only to the cases where the review is sought on the discovery of a new fact, the power to rectify mistakes, in our view, must take within its sweep the power to examine and determine the question which were not considered by the Tribunal in spite of the fact that there was a specific ground in the appeal.

In the result, we do not see any merit in the revision and it is dismissed.

-------------------------------------------------------------------------------- (7)(a) The Appellant or the Respondent may apply for review of any order passed by the Appellate Tribunal under Sub-section (4) on the basis of the discovery of new and important facts which after the exercise of due diligence were not within his knowledge or could not be produced by him when the order was made:

Provided that no such application shall be preferred more than once in respect of the same order.

(b) The application for review shall be preferred in the prescribed manner and within one year from the date on which a copy of the order to which the application relates was served on the applicant in the manner prescribed, and where the application is preferred by any person other than an officer empowered by the Government under Sub-section (1), it shall be accompanied by a fee of rupees two hundred and fifty.