The State of Tamil Nadu vs K.O. Mohamed Sulaiman and Co.

Sethuraman, J.—This revision petition has been filed against the orders of the Sales Tax Appellate Tribunal dated 23rd August, 1975, for

the assessment year 1954-55. This case has had a very long and chequered history and it is necessary to state the facts from the commencement

of the case to the extent relevant in order to appreciate the point involved.

The assessee is a partnership firm, which did not take out a licence u/s 5 of the Madras General Sales Tax Act, 1939, in respect of the dealings

in hides and skins. u/s 3 of that Act, every dealer was liable to pay for each year tax on his total turnover for that year calculated at two per cent of

such turnover. Section 5 of that Act provided that the dealer in hides and skins, whether tanned or untanned, should be liable to tax on single point

basis at the prescribed point subject to such restrictions and conditions as may be prescribed, including the conditions as to licences and licence

fees. In the case of an unlicensed dealer, the question arose whether he was liable to multi-point tax.

In M. A. Noor Mohamed and Co. v. State of Madras [1956] 7 S.T.C. 792, this Court held that an unlicensed dealer in untanned hides and

skins was not liable to tax on his sales turnover under the provisions of the 1939 Act. It was held that Rule 16(5) of the Madras General Sales Tax

(Turnover and Assessment) Rules, 1939, confining the right of single point taxation to dealers who chose to take out a licence, was ultra vires the

rule-making power, because it contravened Section 5(vi) of the Act. This decision was rendered on 2nd April, 1956.

The assessing authority in this case called for the production of books by issue of a notice on 26th June, 1956. The accounts were scrutinised on

6th July, 1956, by the Deputy Commercial Tax Officer. The matter was taken up again on 17th October, 1959, when one Khalilur Rahman

appeared on behalf of the assessee. On that date an assessment order was passed by the Commercial Tax Officer III, Madras City. As the

decision of this Court in M. A. Noor Mohamed and Co. v. State of Madras [1956] 7 S.T.C. 792 then held the field, the assessing authority in the

course of his order observed as follows :

Their (assessees'') assessment for the year was therefore kept pending receipt of instructions consequent on the judgment of the High Court in W.

P. No. 313 of 1954 (M. A. Noor Mohamed and Co. v. State of Madras [1956] 7 S.T.C. 792. The instructions have since been received and so

the assessment is now taken up for consideration.

The turnover figures as per the examination of the books on 6th July, 1956, were then recorded, and the assessment order proceeded to state:

They being non-licensees, none of the above items is taxable. They have dealt in tanned goods only. Hence, no turnover under miscellaneous

goods like bark, lime, etc. The net taxable turnover is therefore nil. Tax due is nil. Tax paid nil. No demand u/s 8-B(2) or Section 3(2) of the Act.

The decision of this Court in M. A. Noor Mohamed and Co. v. State of Madras [1956] 7 S.T.C. 792 was taken on appeal to the Supreme

Court and by its judgment dated 12th August, 1960, reported in State of Madras v. M. A. Noor Mohammed and Co. [1960] 11 S.T.C. 570, the

Supreme Court reversed this Court''s decision.

Thereupon, the Deputy Commissioner of Commercial Taxes issued a notice on 24th April, 1961, followed by another notice on 20th July,

1961, to show cause why the assessment order dated 17th October, 1959, should not be revised. At that stage, the assessee filed a writ petition in

which it was argued that there was no valid order and that the question of revision of the said order did not arise.

The High Court in its decision in the writ petition reported in K.O. Mohamed Sulaiman and Co. v. Deputy Commissioner of Commercial Taxes,

Vepery, Madras [1964] 15 S.T.C. 593, gave two findings. It was pointed out that Rule 12 of the Madras General Sales Tax Rules required that if

no return was filed, the assessing authority should issue a notice to the dealer and make such enquiry as he considered necessary and that, in the

present case, such enquiry had not been conducted. It was also pointed out that a pre-assessment notice was necessary even in the case of a nil

assessment. As in this case there was no pre-assessment notice, the assessment order itself was held to be invalid. However, as this Court did not

want to rest its conclusion on the said ground, it was further pointed out that the order had not been communicated to the assessee, and whether

the assessment was a nil assessment or not, the question of revision would arise only if the order sought to be revised was communicated. The

result was that the proceedings in revision were quashed.

After the receipt of this judgment dated 22nd April, 1963, in the assessee''s writ petition, the sales tax authorities proceeded as if the

communication of the said order dated 17th October, 1959, would cure the defects in the proceedings, and that the Deputy Commissioner could

thereafter proceed to revise the said order when once it was communicated. It was, therefore, communicated by serving a copy on the assessee on

24th July, 1963. Though this was a nil assessment, the assessee purported to file an appeal before the Appellate Assistant Commissioner

apparently to forestall the Deputy Commissioner, pointing out that the ruling of the High Court that the said order was invalid still persisted, as the

order had not been preceded by a pre-assessment notice. The Appellate Assistant Commissioner was, however, of the view that since the order

was served, a valid appeal was pending before him and that he could exercise his power of enhancement ; and in exercise of that power as against

the nil assessment made by the assessing authority, the Appellate Assistant Commissioner fixed the turnover at Rs. 19,80,562-13-3 and raised a

demand of Rs. 19,805-6-2. Against this enhancement, the assessee filed an appeal to the Tribunal. After referring to the decision of the High Court

in the assessee''s own case in K.O. Mohamed Sulaiman and Co. v. Deputy Commissioner of Commercial Taxes, Vepery, Madras [1964] 15

S.T.C. 593, the Tribunal held that the assessment order was invalid and that the mere communication of the order did not cure the defects pointed

out against it in the judgment of the High Court. It was, therefore, held that the order of the assessing authority was non est in law and if there was

no valid order of assessment, there could be no power of enhancement as against it. In this view, the Tribunal cancelled the order of the Appellate

Assistant Commissioner. This order of the Tribunal is dated 9th January, 1967.

Meanwhile, the Supreme Court considered the question whether the non communication of an order was fatal to its validity. In State of

Madras v. P. M. Batcha and Company [1967] 20 S.T.C. 273, it was held that in a case where the assessee was not levied with tax, there was no

rule which compelled the assessing authority to inform the assessee that the tax levied against him was nil. Since there was no assessment to tax

against the assessee, there could be no appeal against it and, therefore, it was held there was no bar to the jurisdiction of the Deputy Commissioner

exercising his power of revision.

The Deputy Commissioner filed a revision before this Court against the order of the Sales Tax Appellate Tribunal dated 9th January, 1967,

reversing the order of the Appellate Assistant Commissioner and cancelling the enhancement. The judgment of the Supreme Court in State of

Madras v. P. M. Batcha and Company [1967] 20 S.T.C. 273 was rendered on 12th April, 1967, while the Tribunal had disposed of the appeal

by its order dated 9th January, 1967. However, by the time the revision proceedings could be taken up before this Court, the judgment of the

Supreme Court was available, and the matter was brought to this Court on revision. In dealing with this revision petition, this Court observed in the

course of its order :

Petition was allowed by this Court on 22nd April, 1963, on two grounds: (1) The order of assessment has been passed without issuing a pre-

assessment notice to the respondents calling for their objections and, therefore, it is non est in the eye of law; and (2) the assessment order not

having been communicated to the respondents, the Deputy Commissioner cannot exercise the powers of revision. The decision of this Court in the

said writ petition had become final.

It was further added by this Court:

The decision of this Court having become final, the revenue cannot now proceed on the basis that the ''nil'' assessment order dated 17th October,

1959, is valid, notwithstanding the fact that it has not been preceded by a pre-assessment notice. The Tribunal is therefore justified in holding that

the ''nil'' assessment order is non est in view of the decision of this Court in the writ petition and in allowing the appeal on the ground that no appeal

lay against a non est order. We therefore agree with the Tribunal and dismiss the tax case."" At the end of the order, this Court observed as follows

: ""It is, however, made clear that, on the facts and in the circumstances of this case, the assessment proceedings should be taken to be pending

before the assessing authority and that he is at liberty to continue the proceedings from the stage from which it was found to be illegal.

Acting on the above observations in T. C. No. 294 of 1967 (State of Madras by the Deputy Commissioner of Commercial Taxes, Madras

Division, Madras-6 v. K.O. Mohamed Sulaiman & Co. Page 162 infra), the Deputy Commissioner directed the Joint Commercial Tax Officer to

issue a pre-assessment notice. The Joint Commercial Tax Officer accordingly issued such a notice. The assessee took various objections stating

that one of the partners had died and that the firm had been reconstituted, and that a separate firm had also come into existence in the place of the

old firm. One further objection was that the notice was time-barred. The objections were overruled and the Joint Commercial Tax Officer

completed the assessment adopting the turnover as taken by the Appellate Assistant Commissioner in the order of enhancement. There was an

appeal and the Appellate Assistant Commissioner held that the assessment proceedings had commenced on 5th July, 1956, when summons was

issued to produce the accounts for the year 1954-55 and that the assessee had also filed the signed statements which were on record. According

to the Appellate Assistant Commissioner, the signed statements would be equivalent to returns and, relying on the decision of the Supreme Court in

Ghanshyamdas v. Regional Assistant Commissioner of Sales Tax, Nagpur [1963] 14 S.T.C. 976, he held that the assessment could be completed

at any time. The observations of this Court in T. C. No. 294 of 1967 {State of Madras v. K.O. Mohamed Sulaiman & Co. Page 162 infra),

extracted earlier, were also taken as giving the necessary authority to make the assessment.

Against this order, an appeal was filed by the assessee before the Tribunal. In the view of the Tribunal, the observations of this Court did not

preclude consideration of the question of limitation and that the time-limit for assessment for the year under consideration was available till 31st

March, 1960, and that the High Court could not by implication have directed the revenue to make the assessment 13 years later without any

regard to the statutory time-limit. In these circumstances, the Tribunal felt ""constrained"" to hold that the assessment was time-barred. The Tribunal

relied also on the fact that this Court had already pronounced in the case reported in K.O. Mohamed Sulaiman and Co. v. Deputy Commissioner

of Commercial Taxes, Vepery, Madras [1964] 15 S.T.C. 593, that the assessment was invalid, that the assessment order was non est and that the

said order had become final. The result was the assessment order dated 15th April, 1974, passed after the judgment of this Court in T. C. No.

294 of 1967 (State of Madras v. K.O. Mohamed Sulaiman & Co. Page 162 infra) was cancelled. It is this order of the Tribunal that is now the

subject of the present revision.

The first question that arises is whether there is any period of limitation with reference to the assessment in the present case. In this connection,

we may notice the decision of the Supreme Court on the point. In Ghanshyamdas v. Regional Assistant Commissioner of Sales Tax, Nagpur

[1963] 14 S.T.C. 976, the matter before the Supreme Court concerned two assessment years 1949-50 and 1950-51. For the year 1949-50, the

assessee submitted a return on 5th October, 1950, for only one quarter and made a default in respect of the other quarters. The Assistant

Commissioner of Sales Tax issued a notice on 13th August, 1954. The assessee thereafter filed the returns for the three quarters in respect of

which he had defaulted.

But during the course of the assessment proceedings, he contended that the Assistant Commissioner could not assess his escaped turnover, as

he could do so only within a period of three years. The period of three years would have ended by 1953 and the notice of the Assistant

Commissioner was dated 13th August, 1954. This objection was overruled and an assessment was made. For the year 1950-51, the assessee had

not filed any return for the whole year. The Assistant Commissioner issued a notice on 15th October, 1954. The returns were filed under protest

along with his objections that the proceedings were barred by time. The Assistant Commissioner rejected this plea and completed the assessment.

These assessments were the subject-matter of writ petition under Article 226 of the Constitution of India. When the matter reached the Supreme

Court, after noticing the decision of the Privy Council in Rajendranath Mukerjee v. Income Tax Commissioner [1934] 2 ITR 71, Subba Rao, J.,

as he then was, speaking for the majority of their Lordships, stated at page 983 (of 14 S.T.C.) as follows :

This decision is a clear authority for the position that if a return was duly made, the assessment could be made at any time unless the statute

prescribed a time-limit. This can only be for the reason that the proceedings duly initiated in time will be pending and can, therefore, be completed

without time-limit. A proceeding is said to be pending as soon as it is commenced, and until it is concluded. On the said analogy, the assessment

proceedings under the Sales Tax Act must be held to be pending from the time the said proceedings were initiated until they were terminated by a

final order of assessment. Before the final order of assessment, it could not be said that the entire turnover or a part thereof of a dealer had

escaped assessment, for the assessment was not completed and, if completed, it might be that the entire turnover would be caught in the net.

At page 987, it was observed as follows :

In the case where a return has been made, but the Commissioner has not accepted it, and has issued a notice for enquiry, the assessment

proceedings will certainly be pending till the final assessment is made. Even in a case where no return has been made, but the Commissioner

initiated proceedings by issuing a relevant notice either u/s 10(3) or u/s 11(4), the proceedings will be pending thereafter before the Commissioner

till the final assessment is made.

Again at page 989, their Lordships held:

As we have held that the submission of a statutory return would initiate the proceedings and that the proceedings would be pending till a final order

of assessment was made on the said return, no question of limitation would arise.

Raghubar Dayal, J., in a separate judgment differed on some points. It is unnecessary for our present purpose to go into the points raised in the

dissenting judgment.

In an earlier decision of this Court in State of Madras v. S. Balu Chettiar [1956] 7 S.T.C. 519, it was held that where an assessee did not file

at any time a return of his turnover for a year, Rule 17 of the Madras General Sales Tax Rules, 1939, applied and that an assessment had therefore

to be made within the period of limitation mentioned in that rule. But that was a case where the assessee had not made the return, and no notices

were issued to the assessee for inquiry. A passage from this case was quoted at page 981 of the case reported in Ghanshyamdas v. Regional

Assistant Commissioner of Sales Tax, Nagpur [1963] 14 S.T.C. 976. The passage was reproduced only for the purpose of showing ""that the

expression ''escaped assessment'' included that of a turnover which had not been assessed at all, because for one reason or other no assessment

proceedings were initiated and, therefore, no assessment could be made in respect thereof"". It would thus be clear that the decision in State of

Madras v. S. Balu Chettiar [1956] 7 S.T.C. 519 would have to be considered in the light of the circumstance that it was a case of no return,

where no other proceedings had been taken by the assessing authority despite the absence of a return.

In Sales Tax Officer, Special Circle, Ernakulam v. Sudarsanam Iyengar & Sons [1970] 25 S.T.C. 252, the parallel provisions of the Kerala

Sales Tax Act were the subject of consideration. Rule 33 of the Travancore-Cochin General Sales Tax Rules, 1950, provided that if for any

reason the whole or any part of the turnover of business of a dealer or licensee had escaped assessment to tax in any year, then the assessing

authority might at any time within three years next succeeding that to which the tax related determine to the best of his judgment the turnover which

had escaped assessment and assess the tax payable. In that case, the assessee was a non-resident dealer carrying on business in the State of

Kerala. When the assessments in respect of sales tax for the assessment years 1961-62 and 1962-63 were pending, he applied for the bifurcation

of the assessment so that he was assessed at three places at which he carried on the business. The request was acceded to by the Board of

Revenue and the orders of assessment relating to 1961-62 and 1962-63 were made in April, 1964, and March, 1964, respectively. The Sales

Tax Officer issued notices in December, 1965, for reopening the original assessment on the ground that certain turnover had escaped assessment.

There was no dispute before the Supreme Court that the assessment for 1961-62 could not have been reopened by the notice issued in

December, 1965. The matter was, therefore, considered only in the light of the facts relating to 1962-63. It was held at page 255 as follows:

Assessment is a comprehensive word and can denote the entirety of proceedings which are taken with regard to it. It cannot and does not mean a

final order of assessment alone unless there is something in the context of a particular provision which compels such a meaning being attributed to

it. In our judgment, despite the phraseology employed in Rule 33, the principle which has been laid in other cases relating to analogous provisions

in sales tax statute must be followed as otherwise the purpose of a provision like Rule 33 can be completely defeated by taking certain collateral

proceedings and obtaining a stay order as was done in the present case or by unduly delaying assessment proceedings beyond a period of three

years.

The decision was that it was enough if the proceedings for assessment of the turnover which had escaped assessment were initiated within

three years, and that it was not necessary that the final order of assessment should be made within that period. As the notice was given in

December, 1965, for the year 1962-63 within the period of three years, the proceedings were held to be in time.

This decision of the Supreme Court came up for application in Anglo French Textiles Limited, Pondicherry v. Slate of Tamil Nadu,

represented by the Deputy Commercial Tax Officer, Madurai W.P. Nos. 3939 to 3941 of 1971 decided on 14th March, 1972 (Madras High

Court), the judgment dated 14th March, 1972. One of the arguments advanced in that case was that in the Kerala Act there was no provision

similar to Section 16(4) of the Tamil Nadu Act and that this would make a difference to the applicability of the decision of the Supreme Court.

Section 16(4) provides that the time during which the proceedings for assessment remained stayed under the orders of a civil court or other

competent authority should be excluded for computing the period of limitation for assessment on the escaped turnover. It was held that this

provision had been brought in ex abundanti cautela and that the decision of the Supreme Court would apply, so that, so long as the proceedings

were pending within the statutory period, there could be no bar to the completion of the assessment even beyond the statutory period.

Thus, the result of these authorities is to establish that so long as the proceedings were pending within the statutory period, there could be no

bar to the completion of the assessment subsequent thereto. The learned counsel for the assessee contended that this is a case where no return had

been filed and that, in such a case, there could be no question of pending proceedings. He relied for this purpose on two decisions.

The first decision is of the Supreme Court in Regional Assistant Commissioner of Sales Tax, Indore v. Malwa Vanaspati and Chemical Co.

Ltd [1968] 21 S.T.C. 431. The assessee in that case was a dealer registered under the relevant Act. He submitted a return of his turnover for the

four quarters of 1958-59 in respect of inter-State transactions. The assessing authority issued a notice dated 17th September, 1962, calling upon

the assessee to show cause why the transactions included in the taxable turnover should not be taxed at the full rate. The assessee at that stage filed

a petition before the High Court under Article 226 of the Constitution of India contending that since the assessment was not completed within three

years from the last day of the year of assessment as provided by Section 10 of the Madhya Bharat Sales Tax Act, 1950, the assessing authority

had no power to continue the proceedings. The High Court quashed the notice. On appeal, the Supreme Court reversed the decision of the High

Court and held that since the proceedings had already properly commenced, by the assessee filing his return, these proceedings could be

completed at any time, and the issue of notice u/s 8(2) on 17th September, 1962, did not attract the bar of Section 10. That was a case where

there was a pending proceeding since the assessee had filed a return.

R. E. M. Ramakutty Nadar v. State of Madras [1973] 31 S.T.C. 44, another decision relied on by the assessee, was a case where an

assessee had not submitted any return for the years 1962-63 and 1963-64. There was a surprise inspection of the business premises of the

assessee on 26th July, 1964, and certain statements were recorded. The assessments were made for both the years on 30th September, 1964, to

the best of his judgment. One of the contentions taken before this Court was that the assessing authority had proceeded to assess the assessee u/s

12(2) of the Act on the basis of best judgment on the ground that no return had been submitted by him and that, in a case where no return was

submitted, the assessment could only be made u/s 16 and that, therefore, the assessments u/s 12(2) could not be sustained. It was in this

connection that the decision of the Supreme Court in Regional Assistant Commissioner of Sales Tax v. Malwa Vanaspati and Chemical Co. Ltd.

[1968] 21 S.T.C. 431 was cited. It was pointed out by the Supreme Court that where a dealer had not filed the prescribed return of his turnover,

the case was clearly one of ''''escaped assessment"", and that the proceedings for such assessment must commence within the period prescribed u/s

The learned Judges of this Court found that the decision of the Supreme Court was not applicable and held that though the assessment order

was purported to be made u/s 12, it was one which could be taken to have been made u/s 16 and that, therefore, the assessment was within time.

Even in that case there was no proceeding taken by the authorities before completing the assessment. The surprise inspection of the premises

and the recording of the statements at the stage of the inspection were not taken as equivalent to the issue of statutory notice to the assessee in

connection with any inquiry for making the assessments for the two particular years in question.

It is enough for our present purpose to state that these decisions relate to cases where there was no return by the assessee and where no

proceedings by the issue of any statutory notice were taken by the assessing authority for making the assessment for the relevant year. In the

present case, a notice was issued on 26th June, 1956, with particular reference to the assessment for the year in question and there was a scrutiny

of the relevant accounts, and the assessment was also completed, though infructuously as later events show, on 17th October, 1959. It was not

suggested that the notice dated 26th June, 1956, was anything other than the statutory notice in the course of assessment proceedings. It was in the

appropriate form, viz., form XII, which provides for the conduct of an enquiry under the Tamil Nadu General Sales Tax Act, in a matter pending

before the assessing authority. The assessee had produced the relevant accounts and he could have thus no doubt about the proceedings relating to

the year under consideration. The rules contemplate the submission of periodical returns. Rule 11 provides that if no return is submitted by the

dealer as required by Rule 9 or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, then the assessing

authority shall, after making such enquiry as he considers necessary, determine the turnover of the dealer to the best of his judgment. Thus Rule 11

itself contemplates a kind of enquiry where no return is submitted by the assessee. The notice under form XII was only such a notice because the

assessee had failed to submit a return. In these circumstances, there is absolutely no bar of limitation standing in the way of the order now under

consideration being made.

During the course of the hearing, the learned counsel for the assessee drew our attention to the decision of the Patna High Court in State of

Bihar v. Bal Kishun Halwai [1974] 34 S.T.C. 354. In that case the assessee was assessed for two periods. Appeals were preferred against the

orders of assessment, and the appellate authority remanded the proceedings to the assessing officer with a direction to make local enquiry to

ascertain the actual state of the assessee''s business and volume of sales. The periods under consideration were 1st April to 30th September,

1957, and 1st October, 1957, to 31st March, 1959. The relevant appellate orders were passed on 2nd July, 1960, and 11th November, 1960,

respectively. These orders were received by the assessing officer in August, 1960, and January, 1961. For some reason or other, no action was

taken until an enquiry started on 21st September, 1963, when the assessee was required to produce books of account. Notices were also issued

on 14th November, 1963. It was contended on behalf of the assessee that since 14th November, 1963, was beyond the period of two years from

the date of the disposal of the appeals, no proceedings for assessment of the tax could be initiated and, as such, the proceedings were time-barred.

The Patna High Court held that the order of the Appellate Assistant Commissioner did not terminate the proceedings and that the order of remand

kept the proceedings pending. It was, therefore, held that the subsequent issue of notices was not affected by any bar of limitation.

We do not find that this case is of any assistance to the assessee. In fact, it reinforces the view that so long as the proceedings are pending,

there can be no question of any bar of limitation. In the present case, we are satisfied that the proceedings were pending as a result of the issue of

notice on 26th June, 1956. The pending proceedings had not been terminated by any order of assessment. In fact, the original order of assessment

dated 17th October, 1959, was considered to be non est. In such a case, there can be no termination of the assessment proceedings. As the

assessment could be completed, as seen already, without any time-limit so long as the proceedings were pending, the assessment now under

challenge in the present case is valid.

Before parting with the case we would only express our surprise at the way in which the Sales Tax Appellate Tribunal has treated the order of

this Court in T. C. No. 294 of 1967 (State of Madras v. K. 0 Mohamed Sulaiman & Co. Page 162 infra). It could be seen from a perusal of the

said order that this Court considered all aspects before holding that the decision of the court characterising the assessment order dated 17th

October, 1959, as non est had become final. It is thereafter that this Court considered it proper to state that the assessment proceedings should be

taken to be pending before the assessing authority and that he was, therefore, at liberty to take the proceedings at the stage from which it was

found to be illegal. The stage at which it was found to be illegal was the non-issue of a pre-assessment notice. These observations could have left

no doubt on any reasonable person as to what was meant thereby. The clear pronouncement was that the assessment proceedings were pending

and had not terminated. This is in line with the decisions, which we have examined. It was not open to the Sales Tax Appellate Tribunal to take

upon itself the task of scrutinising the correctness or otherwise of this Court''s order. The law on this point is clear that the bar of limitation does not

apply to the pending proceedings. It has been ruled in the present case that the proceedings were pending. It was, therefore, the duty of the Sales

Tax Appellate Tribunal to have acted upon the judgment of this Court. If really any error had been committed in the said order, then the

appropriate forum was either this Court in revisional proceedings after the Tribunal passed an order in conformity with the ruling of this Court or

any superior court. The Tribunal is clearly wrong in proceeding as if this Court did not bear in mind the question of limitation when it pronounced in

the manner done at the close of the judgment. The revision is accordingly allowed with costs. Counsel''s fee Rs. 250.