Surya Fertilisers and Chemicals vs The State of Tamil Nadu

Ismail, J.—The common facts that arise in T.C. Nos. 117 and 118 of 1973 are as follows : In the original assessment the petitioner herein

claimed that ""technical grade urea"", which it purchased from Neyveli Lignite Corporation and, subsequently sold, constituted chemical fertilisers

coming within the scope of entry 21(3) of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as the Act)

and, consequently, the sales by it being second sales were not liable to tax. This contention was accepted by the assessing authority and, therefore,

the turnover referable thereto was excluded. Subsequently, the assessment was reopened u/s 16 of the Act and the turnover was included. The

petitioner put forward two contentions against the reopening. One was, Section 16 did not warrant such reopening of the assessment under such

circumstances and, secondly, that ""technical grade urea"" was nothing but urea coming within the scope of entry 21(3) of the First Schedule and,

therefore, was entitled to be excluded from the taxable turnover. Both those contentions were rejected and the reopening and the consequential

assessment were sustained by the Tribunal. It is this conclusion that is challenged in the present tax revision petitions.

We shall first deal with the case of the petitioner on merits. When the Neyveli Lignite Corporation sold the goods to the petitioner, the goods

were shown as ""technical grade urea"" and charged sales tax only 2 1/2 per cent at the multi-point rate and when the petitioner, in turn, sold the

same to various persons, it described the goods as ""technical grade urea"" and the bills themselves stated that it was not intended for use or sale as

fertiliser. Consequently, it is clear that even the petitioner did not treat the goods in question as chemical fertilisers falling under entry 21(3), but

treated them only as chemical. Therefore, it is patent that the earlier exclusion of the turnover was erroneous and the subsequent Inclusion thereof

in the turnover was correct.

As far as T.C. Nos. 149, 150 and 151 of 1973 are concerned, they relate to canteen sales. The exemption of the canteen sales from the liability

to sales tax is provided for by a notification of the Government in G. O. Ms. No. 2238, Revenue, dated 1st September, 1964, as amended

subsequently. That notification provides ;

...All sales by canteens run by an employer or by the employees on co-operative basis on behalf of the employer, under a statutory obligation

without profit-motive, provided that the employer subsidises at least twenty-five per cent of the total expenses including the expenses towards the

purchases incurred in running the canteen.

T.C. No. 149 of 1973 is concerned with an assessment made for the first time u/s 12 of the Act. T.C. Nos. 150 and 151 of 1973 deal with the

assessment as a result of reopening u/s 16 of the Act since the canteen sales were previously exempted. Consequently, on merits, the common

question that arises in respect of these three cases is whether the petitioner was entitled to the exemption in respect of canteen sales in terms of the

notification of the Government referred to above. There is no controversy in these cases that the twenty-five per cent of the expenses provided for

in the notification will be satisfied only if the depreciation allowance in respect of canteen equipments other than furniture used in the canteen are

taken into account. If the depreciation is excluded, certainly the requirement of twenty-five per cent of the total expenses by way of subsidy is not

satisfied. The learned counsel for the petitioner contended that the depreciation allowance will have to be taken into account. We are unable to

accept this argument in the light of the language used in the notification referred to above. The notification contemplates the actual incurring of

expenditure while the depreciation allowance is only a notional allowance and not an expenditure actually incurred. Consequently, the conclusion of

the authorities below that for the purpose of computing the twenty-five per cent of the expenses by way of subsidy depreciation allowance should

not be taken into account is correct. The conclusion is sufficient to dispose of T.C. No. 149 of 1973 but in T.C. Nos. 150 and 151 of 1973, the

question as to the validity of the reopening of the assessment u/s 16 of the Act will have to be considered.

T.C. No. 507 of 1974 deals with the case of exclusion of the turnover relating to the sale of scrap materials at the first instance, but the

subsequent Inclusion as a result of reopening. As far as the merits as to liability or otherwise of the turnover to be included in the taxable turnover is

concerned, that question is now concluded by the decision of the Supreme Court in State of Tamil Nadu Vs. Burmah Shell Oil Storage and

Distributing Co. of India Ltd. and Another, Consequently, in view of the judgment.of the Supreme Court, it must be held that the turnover relating

to the sales of scrap is liable to be included in the taxable turnover.

As far as T.C. Nos. 447 and 448 of 1976 are concerned, in those cases originally certain turnover was excluded from the taxable turnover on

the ground that the sales thereof represented turnover relating to export sales. In view of the judgment of the Supreme Court in Serajuddin and

Others Vs. The State of Orissa, , that turnover could not be excluded but has to be included. That is what has been done by reopening of the

assessment u/s 16 of the Act. Consequently, in all the above cases, on merits, the turnover in question was liable to be included in the taxable

turnover.

That leaves the next question in T.C. Nos. 117, 118, 150 and 151 of 1973, 507 of 1974 and 447 and 448 of 1976 as to the validity of the

reopening of the assessment u/s 16 of the Act. Section 16(1) of the Act is in two clauses and the same is as follows:

Assessment of escaped turnover.-(1) (a) 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.

(b) Where, for any reason, the whole or any part of the turnover of business of a dealer has been assessed at a rate lower than the rate at which it

is assessable, the assessing authority may, at any time within a period of five years from the expiry of the year to which the tax relates, reassess the

tax due after making such enquiry as it may consider necessary and after giving the dealer a reasonable opportunity to show cause against such

reassessment.

Basing upon the language of these sub-clauses, the contention of the learned counsel for the petitioners is twofold. One is that the section uses

the expression ""turnover of business of a dealer has escaped assessment to tax"" and, according to the learned counsel, when the assessing

authority, at the first instance, has actually applied his mind to a particular turnover and rightly or wrongly held that the turnover was not liable to be

included as a taxable turnover, such turnover cannot be said to be an escaped turnover. According to the learned counsel, the expression ""escaped

turnover"" will include only that turnover which was not at all noticed by the assessing authority, whatever the reason may be, but it will not include

the turnover which was actually noticed and with reference to which the assessing authority has come to a conclusion one way or the other. The

second submission based on the language of Section 16(1) of the Act is that the section talks of the assessing authority determining to the best of

judgment the turnover which has escaped assessment and the reference to the best of judgment will necessarily import into it the. notion of an

estimate of the turnover and when the turnover was actually before the authority originally and was decided not to be includible in the taxable

turnover, the question of estimating such a turnover by way of rectification or reopening cannot arise and, therefore, to such a turnover Section

16(1) cannot apply. We are of the opinion that there is no substance in either of these contentions. As far as the first contention based upon the

notion of escaped turnover is concerned, the question has been considered by a Bench of this Court, to which one of us was a party, in Yercaud

Coffee Curing Works Ltd., Salem v. State of Tamil Nadu represented by the Deputy Commercial Tax Officer, Salem (Rural) [1977] 40 S.T.C.

531 (T.C.) Nos. 298 to 300, 305 and 314 of 1971 decided on 18th March, 1976). The Bench has taken the view that Section 16 will apply even

to a turnover which was originally considered by the assessing authority, which authority after applying its mind to the turnover has held that the

turnover, for some reason or other, was exempt from tax or was not includible in the taxable turnover. Following that judgment, we must reject the

first contention advanced by the learned counsel for the petitioners.

The second contention is the result of a confusion between the best judgment assessment provided for in Section 12(2) of the Act and the

determination to the best of judgment of the turnover provided for in Section 16(1) of the Act. The language used in the two sections and the

purpose for which the best judgment test is to be applied are different. Therefore, simply because Section 16(1) uses the expression ""best of its

judgment"", it cannot be held that Section 16(1) can be invoked only in a case where an element of estimate of the turnover enters into the

calculation and has no application to a case where a turnover is known and definite and only the liability of the same to tax is under consideration.

Therefore, we reject the second contention also.

The result of this will be that these tax cases fail and they are dismissed. There will be no order as to costs.