The State of Tamil Nadu vs The Mahalakshmi Textile Mills Limited

Sethuraman, J.—This case has a long history behind it. We are now concerned only with the assessment year 1960-61. The dispute in the

present case relates to the assessability of a sum of Rs. 26,38,393.38. For this year, the original assessment order was passed on 30th December,

1963. The assessee did not file any appeal against the assessment. The claim of the assessee, a spinning mill, carrying on business in the

manufacture and sale of cotton yarn, subsequently, was that the levy and collection of tax on the value of cotton purchased in the course of inter-

State trade was illegal, void and without jurisdiction. According to the assessee, it came to know of the illegality of the claim only after the decision

of the Supreme Court in K.G. Khosla and Co. v. Deputy Commissioner (Commercial Taxes) [1966] 17 S.T.C. 473 rendered on 18th January,

1966. The judgment in that case was published in the ""Sales Tax Cases"" in May, 1966. The assessee filed petitions for rectification u/s 55 of the

Tamil Nadu General Sales Tax Act for the assessment years 1953-54 to 1962-63 on 15th June, 1966 and 23rd June, 1966. The assessing

authority summarily rejected the petitions on 10th May, 1967.

The assessee took also proceedings u/s 33 of the Act before the Deputy Commissioner seeking refund of the tax collected. The Deputy

Commissioner negatived the prayer on 8th January, 1967. The assessee again filed another petition to the Deputy Commissioner to exercise the

suo motu powers of revision vested in him u/s 32 of the Act on 26th July, 1967. The Deputy Commissioner rejected this petition by an order

received by the assessee on 19th February, 1968,

Thereafter, the assessee preferred an appeal to the Appellate Assistant Commissioner on 13th March, 1968, against the order of the assessing

officer rejecting the application made u/s 55 of the Act by order dated 10th May, 1967. On 5th April, 1968, the Appellate Assistant

Commissioner dismissed the appeal as time-barred. There was a further appeal to the Tribunal which proved unsuccessful. Neither the Appellate

Assistant Commissioner nor the Tribunal went into the merits of the matter. The dismissal of the appeal by the Tribunal was on 31st March, 1970.

Thereafter, the assessee filed a revision petition before this court against the order of the Sales Tax Appellate Tribunal and it was dismissed in

limine.

On 31st March, 1968, soon after filing the appeal before the Appellate Assistant Commissioner against the order u/s 55, there was a petition to

the High Court under Article 226 of the Constitution (W.P. No. 1519 of 1968) against the order of the Deputy Commissioner rejecting the

assessee''s prayer invoking his jurisdiction u/s 32 of the Act. As stated earlier, the Deputy Commissioner had passed the order on 19th February,

1968 and the writ petition was filed soon thereafter. This writ petition came to be disposed of by this court on 23rd November, 1971 and the

decision is reported in Mahalakshmi Textile Mills Limited v. Deputy Commercial Tax Officer, Madurai [1972] 30 S.T.C. 412. The contention

taken on behalf of the revenue before the court was that the power u/s 32 could not be invoked by an assessee, as the section provided for the

exercise of such power voluntarily by the authority concerned. This contention taken by the revenue was rejected following an earlier decision of

this court in Raj Brothers Agencies v. Board of Revenue [1972] 30 S.T.C. 410. It may be stated here that this decision was affirmed by the

Supreme Court in Board of Revenue v. Raj Brothers Agencies [1973] 31 S.T.C. 434. Having found that the defence of the revenue that the suo

motu powers could not be invoked by the assessee by an application, was contrary to the aforesaid decision of this court, the learned Judge,

Rama-prasada Rao, J., proceeded to observe as follows at page 413 :

The second respondent, therefore, has failed in his public duty in not having acted u/s 32 of the Act and considered the propriety or necessity of

exercising the power. It is for him to decide one way or the other but he cannot refuse to act.

The petitioner also has asked for a direction for the refund of tax. I am not inclined to entertain such a request at this stage, because it is for the

Deputy Commissioner of Commercial Taxes to consider the application for invocation of his power u/s 32, bearing in mind all the processes and

means of redress already availed of by the petitioner.

When the matter went back before the Deputy Commissioner as a result of the said order on the writ petition, the Deputy Commissioner passed

an order on 30th May, 1973. He pointed out that the levy and collection of tax on the inter-State or import purchase of cotton was either due to

the absence of the claim by the assessee, or because of the interpretation of law as it was then understood. According to the Deputy

Commissioner, it was well-settled that an assessee could not reopen and reagitate the sustainability or otherwise of an assessment which had

become final long ago by his default to take appropriate proceedings statutorily available to him, taking advantage of subsequent judicial

pronouncements favourable to him. As the assessee had not availed itself of the effective remedy of appeal under the Act in respect of the

assessment year 1960-61, the Deputy Commissioner held that the assessee could not invoke the revisional jurisdiction u/s 32 of the Act.

Against the said order rejecting the petition to invoke jurisdiction u/s 32, the assessee filed an appeal before the Sales Tax Appellate Tribunal.

The Tribunal disposed of the appeal on 25th January, 1974. During the pendency of the appeal, the Tribunal noticed that the assessee had

produced the accounts and records in pursuance of a notice received from the Deputy Commissioner and that the Deputy Commissioner had also

directed the assessing officer to verify the accounts and give a report and that the assessing authority made enquiries in accordance with the

direction of the Deputy Commissioner. The Tribunal directed the Additional State Representative appearing on behalf of the State before it to file

the relevant report of the Deputy Commercial Tax Officer. That report showed that the entire disputed turnover related only to inter-State

purchase of cotton and that the claim for exemption would have to be upheld on merits.

The contention taken on behalf of the State before the Tribunal was that it was not open to the assessee to reopen an assessment which had

become final long ago taking advantage of a subsequent judicial pronouncement. The Tribunal pointed out that the question of admissibility had

once for all been decided by the High Court when it had directed the petition to be taken on file. The view that supervening judgments of a court

cannot by themselves form the foundation for the exercise of power to rectify an assessment order when the appropriate authority was asked to do

so did not, in the view of the Tribunal, appear to be tenable in view of the judgment of this court in Kuppana Gounder v. Appellate Assistant

Commissioner [1973] 32 S.T.C. 522, following an earlier decision of the Supreme Court in The Commissioner of Income Tax, Bombay City Vs.

The Khatau Makanji Spinning and Weaving Co. Ltd., Bombay, . The Tribunal, therefore, allowed the appeal as the matter had already been

investigated and it had already been found that the assessee was eligible for the exemption on the ground that the relevant purchases of cotton were

of inter-State nature. This order has been challenged by the State in the present revision petition.

The learned Additional Government Pleader submitted that the assessment has been made on 30th December, 1963 and that though the

assessee filed an application on 26th July, 1967, the order could not be revised at this stage. This contention is based on the provisions of Section

32 of the Act. Section 32 provides that the Deputy Commissioner may, of his own motion, call for and examine an order passed or proceeding

recorded by the appropriate authority under the specified provisions and may make such inquiry or cause such inquiry to be made and, subject to

the provisions of the Act, may pass such order thereon as he thinks fit. Clause (c) of Sub-section (2) of Section 32 provides that the Deputy

Commissioner shall not pass any order under Sub-section (1) if more than four years had expired after the passing of the order. The time-limit was

enlarged to ""five"" years by Act 31 of 1972 with effect from 1st December, 1972. As the application of the assessee had been made on 26th July,

1967, the law that was then in force provided only for a period of four years, within which the revisional power could have been exercised by the

Deputy Commissioner. The petition invoking the jurisdiction u/s 32 had already been filed on 26th July, 1967, which fell within the period of four

years provided in the section. Therefore, as far as the assessee was concerned, it had acted within time. The time-limit would ""have expired by

30th December, 1967. As the assessee had filed the application in July, 1967, the Deputy Commissioner had five long months within which he

could have exercised his jurisdiction under that provision. He, however, failed to act within the period provided under the law and, ultimately

passed an order which was received by the assessee on 19th February, 1968. As mentioned already, it is this order which gave rise to the writ

petition. In the course of the hearing of the writ petition it was not the case of the State that the period of four years having already elapsed there

was no possibility of the order being revised under the provisions of Section 32 and that, therefore, any issue of a writ would be futile. The only

defence was that the suo motu power could not be exercised on an application by the assessee. As this objection was found to be without merit,

this court directed the Deputy Commissioner to go into the matter. Therefore, it is not now open to the State to contend that the time-limit

prescribed u/s 32 having already elapsed, there is no scope for exercising jurisdiction u/s 32. The Deputy Commissioner cannot sleep over an

application and rely on the expiry of the time-limit which arose out of his negligence.

It is also well-settled that the time-limit provided under any provision of a statute would not apply to an order in pursuance of a direction given

by a court in writ proceedings. This was laid down in The Director of Inspection of Income Tax (Investigation), New Delhi and Another Vs.

Pooran Mal and Sons and Another, . In that case, the Income Tax authority carried out a search on 15th and 16th October, 1971, at the

residence of the assessee. Certain account books and properties were recovered. On 12th January, 1972, the Income Tax Officer passed a

summary order u/s 132(5) of the Income Tax Act, 1961, on the basis that all the assets seized belonged to the assessee. Thereupon, the assessee

and a firm of which he was a partner filed a writ petition in the High Court challenging the order dated 12th January, 1972. On 6th April, 1972, on

the basis of the consent of the parties, the High Court quashed the order and permitted the department to make a fresh order within two months.

The Income Tax Officer thereafter passed an order on 5th June, 1972, holding that the properties belonged to the assessee, an individual and not

to the firm of which he was a partner. There was again a writ petition challenging the second order on the ground that the Income Tax Officer had

no jurisdiction to pass that order beyond the period prescribed in Section 132(5) of the Act. The High Court accepted this plea and set aside the

order. This decision of the High Court was carried on appeal to the Supreme Court. The Supreme Court held that an order made in pursuance of

a direction given u/s 132(12) or by a court in writ proceedings was not subject to the limitations prescribed u/s 132(5). It was pointed out at page

395:

To hold otherwise would make the powers of courts under Article 226 wholly ineffective.

u/s 32 itself, a case arose in Deputy Commissioner of Commercial Taxes v. Abdul Shukoor and Co. [1977] 39 S.T.C. 137. In that case, the

Deputy Commercial Tax Officer held that the entire turnover of the assessee was exempt from taxation and made an order on 13th June, 1958.

Subsequent to that order the Supreme Court reversing a decision of this court held that unlicensed dealers in hides and skins were liable to be

taxed at multi-point on their purchase turnover. The Deputy Commissioner invoking his powers u/s 32 issued a notice to the assessees calling upon

them to show cause why the taxable turnover should not be revised including the entire turnover exempt as taxable, in accordance with the decision

of the Supreme Court. After considering the objections of the assessees, the Deputy Commissioner passed an order on 3rd July, 1961, taxing the

entire turnover which had earlier been exempted. In the appeal before the Tribunal, though it was not disputed earlier that the turnover would have

been liable to tax, it was contended that the transactions were export sales. Since the consideration of this question involved permitting the

assessees to adduce further evidence and a consideration of the same on merits, the Tribunal remanded the case to the Deputy Commissioner with

a direction to consider the question of sales in the course of export, by its order dated 24th July, 1963. By his order dated 3rd January, 1967, the

Deputy Commissioner held that the turnover was not in the course of export and that it was taxable. The assessees preferred an appeal to the

Tribunal. The question that arose in the appeal before the Tribunal was whether the order of the Deputy Commissioner dated the 3rd January,

1967, was beyond the period of limitation. This contention found favour with the Tribunal. In the revision petition filed by the State, this court, after

referring to the provisions of Section 32, followed the decision of the Supreme Court referred to above and held that the period prescribed u/s

32(2) would not apply to a fresh order to be made by the Deputy Commissioner in pursuance of a remand order made by the Appellate Tribunal.

So the result is that the objection of the learned Additional Government Pleader, in the instant case, that no order could have been passed u/s 32

after 30th December, 1967, even though the matter was remanded by this court in the writ petition and the Deputy Commissioner was bound to

consider the refund of tax in the light of the remand order, is without force.

The next question that arises is whether the Deputy Commissioner was right in refusing to act u/s 32 because of the assessee''s failure to appeal

against the assessment. This matter is also concluded by an earlier decision of this court in State of Tamil Nadu v. Palani [1977] 39 S.T.C. 303. In

that case, the assessee had not preferred an appeal against the order of assessment to the appellate authority. He invoked the jurisdiction of the

Deputy Commissioner u/s 32. But the Deputy Commissioner refused to exercise his powers of revision u/s 32, solely on the ground that the

assessee had not been diligent in preferring an appeal. Against the order of the Deputy Commissioner, there was an appeal to the Tribunal. The

Tribunal set aside the order of the Deputy Commissioner and directed him to dispose of the petition filed by the assessee in accordance with law,

on the assumption that the dismissal of the petition by the Deputy Commissioner was on the ground that the petition was belated. On revision, it

was held by this court that the Tribunal was wrong in proceeding on the basis that the Deputy Commissioner dismissed the application preferred by

the assessee on the ground that it was belated. There was another contention taken before this court that the assessee not having filed any appeal

against the assessment, the powers of revision could not be invoked by the Deputy Commissioner. This court pointed out that the Deputy

Commissioner could not refuse to exercise his discretion solely on the ground that the assessee had not been diligent enough to prefer an appeal,

because if an appeal had been filed there would not have been any occasion for the assessee to invoke the jurisdiction of the authority u/s 32. It

was therefore held that the Tribunal was right in setting aside the order of the Deputy Commissioner and remitting the matter to him for disposal

according to law. It may be seen that the result of this decision is that the Deputy Commissioner cannot decline to exercise his jurisdiction u/s 32

merely because the assessee had not filed any appeal against the assessment. If we accept the contention urged on behalf of the State, that the

Deputy Commissioner could refuse to exercise the jurisdiction u/s 32 on account of the failure of the assessee to file an appeal, then the provisions

of Section 32 would be, in most cases, rendered nugatory. If an appeal had been filed and disposed of, then the Deputy Commissioner would have

no jurisdiction to revise the order of the subordinate authority. If no appeal had been filed and if he is allowed to decline to exercise his jurisdiction

because of the failure of the assessee to file an appeal, then the result would be that the powers u/s 32 could not be invoked in such cases also.

Any contention which leads to this result cannot be upheld. We, therefore, hold that the reason given by the Deputy Commissioner for declining to

exercise his jurisdiction was rightly rejected by the Tribunal in the present case.

Another contention that was taken on behalf of the revenue was that the assessee could not have filed an application u/s 32 in the present case,

because the exemption of the sales from tax was already available under the law and the assessee after showing the amount of the turnover in its

return and after getting it assessed without protest, could not later contest the liability and invoke the jurisdiction u/s 32. For this purpose, reliance

was placed on a decision of the Supreme Court in Bombay Ammonia Pvt. Ltd. v. State of Tamil Nadu [1977] 39 S.T.C. 303. Before proceeding

to examine this contention, we may point out that this contention is only an altered version of the earlier objection based on the assessee not having

appealed against the assessment, which we have rejected.

In Bombay Ammonia Pvt. Ltd. v. State of Tamil Nadu [1976] 37 S.T.C. 517, the Deputy Commissioner, in pursuance of his powers u/s 32,

issued a notice to the assessees calling upon them to show cause why a penalty on an undisclosed turnover be not levied against them. In response

to this notice, the assessees challenged the jurisdiction of the Deputy Commissioner to levy the proposed penalty and, in the alternative, prayed that

a certain sum representing works contracts should not have been included in the assessment. The assessees had not brought to the notice of the

assessing authority that that turnover related to works contracts so as to be exempt from liability to tax. No appeal had also been preferred against

the assessment. The Deputy Commissioner did not accede to the alternative prayer of the assessees that the turnover could not have been taxed.

The Appellate Tribunal, on appeal against the order of the Deputy Commissioner, allowed the assessees'' claim. But this court reversed the order

of the Appellate Tribunal in so far as it related to the assessees'' claim for exemption. On further appeal, the Supreme Court held that the suo motu

power conferred on the Deputy Commissioner u/s 32 was quite wide and that he could, subject to the conditions laid down in Sub-sections (2)

and (3), exercise the same even at the instance of an assessee who had not filed an appeal against the order for the purpose of rectifying any

illegality or impropriety therein. The Supreme Court further held that the Deputy Commissioner rightly refused to exercise his revisional jurisdiction

in favour of the assessees in so far as it related to their claim regarding the exemption. With reference to this aspect, the Supreme Court observed

at page 521:

With regard to the second question relating to the refusal by the Deputy Commissioner to exercise his revisional power in favour of the appellants,

we are of the view that the order does not suffer from any infirmity. It is true that money paid under a mistake of law common both to the assessee

and the taxing authority can be got refunded (see the decision of this court in State of Kerala v. Aluminium Industries Ltd. [1965] 16 S.T.C. 689).

But, in the instant case, the appellants themselves submitted a return showing taxable turnover of Rs. 6,41,031.77. At no stage of the assessment

proceedings before the assessing authority did they bring it to his notice that a substantial portion of the turnover related to works contracts and

was as such exempt from liability to tax. The appellants not having raised the question by claiming the exemption, the assessing authority had no

occasion to consider it. It cannot, therefore, be said that the order of assessment suffered from any illegality. It is also significant that the appellants

acquiesced in the order of assessment passed by the assessing authority and did not prefer any appeal against it nor did they take any other step to

have it modified. Even in the objections filed by them to the show cause notice issued by the Deputy Commissioner in regard to the levy of penalty,

they made a half-hearted attempt to claim exemption. It will be relevant in this connection to advert to the prayer made by them which is couched

in the following terms :

In the circumstances we request you that the Deputy Commissioner may either totally drop the proposal to levy penalty or in the alternative totally

cure the illegality of the assessment and render justice.

The plea put forth by the appellants that they did not claim exemption under the mistaken impression that the transaction amounted to sale of goods

cannot also be"" countenanced in view of the fact that so far back as in 1954 it was held by the Madras High Court in Gannon Dunkerley and Co.

(Madras) Ltd. v. State of Madras [1954] 5 S.T.C. 216, that works contracts did not involve any element of sale of materials and the levy of sales

tax thereon was unlawful. This ruling was affirmed by this court in State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. [1958] 9 S.T.C.

We are, therefore, of the view that the Deputy Commissioner rightly refused to exercise his revisional jurisdiction in favour of the appellants

and the High Court was right in reversing the order of the Appellate Tribunal in so far as it related to the appellants'' claim to the aforesaid

exemption.

The learned Additional Government Pleader referred us to the fact that in the case before the Supreme Court also the assessee not having filed

an appeal was relied on in support of the conclusion that the Deputy Commissioner rightly refused to exercise his revisional jurisdiction. The

Supreme Court, it must be remembered, was concerned with a case where the assessee did not have any objection to the assessment right up to

the stage of the revision proceedings taken by the Deputy Commissioner. It was only as a half-hearted attempt-if, we may say so, as a kind of

bargain-that the assessee wanted the legality of the assessment itself to be gone into by the Deputy Commissioner. The Supreme Court held that

the Deputy Commissioner could not be required to go into this half-hearted objection made by the assessee. The earlier part of the judgment

clearly lays down that the power u/s 32 could be exercised even at the instance of a person who had not filed an appeal. The latter part cannot be

understood as contradicting the earlier ones.

The learned Additional Government Pleader relied upon the above passage also to show that in the present case the law was all along the

same and that Khosla''s case [1966] 17 S.T.C. 473 cannot be taken to lay down any new proposition which requires to be applied in the, revision

proceedings. According to the learned Additional Government Pleader, just as the decision in Gannon Dunkerley''s case [1954] 5 S.T.C. 216,

referred to by the Supreme Court, rendered in 1954, was cited in support of the view that the assessee could have raised the objection earlier, but

did not do so and, therefore, could not invoke the provisions of Section 32, in the present case the assessee could not be countenanced to invoke

the provisions of Section 32. We consider that this objection of the learned Additional Government Pleader cannot also be considered to be of

merit. There is no parallel between the situations arising in the two cases. In the present case, it may be remembered that the assessee invoked the

jurisdiction u/s 32 by relying on the decision of the Supreme Court in Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes

[1966] 17 S.T.C. 473. This decision of the Supreme Court reversed a decision of this court rendered on 16th August, 1963. In that judgment, this

court had taken the view that the transactions under consideration there did not come within the scope of Sections 3(a) and 5(2) of the Central

Sales Tax Act. In other words, this court had taken the view that before a sale could be said to have occasioned the import it was necessary that

the sale should have preceded the import. The Supreme Court, however, pointed out at page 488 of the Reports, after discussing the earlier

decisions:

Accordingly we hold that the High Court was wrong in holding that before a sale could be said to. have occasioned import it is necessary that the

sale should have preceded the import.

The above passage clearly establishes that the High Court had taken a different view with reference to similar transactions and that the

Supreme Court reversed that view. Therefore, so long as the view of the High Court prevailed, the assessee could not have successfully appealed

against the decision. In those circumstances, we do not consider that the present case stands on the same footing as that in the decision of the

Supreme Court in Bombay Ammonia case [1976] 37 S.T.C. 517.

We do not find any merit in the contentions taken at the instance of the State before us. This revision petition is dismissed with costs. Counsel''s

fee Rs. 250.