V. Nagarathinam Ammal vs Deputy Commercial Tax Officer, Sankari

V. Ramaswami, J.—Soundamman Textiles, Komarapalayam, was a partnership firm carrying on business in the manufacture and sale of

handloom cloths. For the assessment years 1960-61 to 1963-64, accepting the returns filed by the firm, the Deputy Commercial Tax Officer,

Tiruchengode, assessed the firm and collected the tax. Long after that, the assessing officer reopened the assessment for the said years on the

ground that certain sale of imported silk yarn and dyes were also liable for sales tax as they were not utilised in the manufacture of handloom cloth.

After following the procedure, the assessing officer made a reassessment order on 25th March, 1966 in respect of the assessment year 1960-61

and on 31st March, 1966 in respect of the three assessment years, namely, 1961-62, 1962-63 and 1963-64. The same assessing officer assessed

the firm for 1964-65 also on 21st February, 1966. The assessing officer also levied penalties u/s 12(3) of the Tamil Nadu General Sales Tax Act,

1959, hereinafter referred to as ""the Act"", in respect of the assessment years 1960-61 to 1963-64 and u/s 16(2) of the Act in respect of the

assessment year 1964-65. The firm preferred appeals against the reassessment orders and penalty in respect of the assessment years 1960-61 to

1963-64 and the assessment order and penalty in respect of the assessment year 1964-65 to the appellate authority. Simultaneously, they also

filed writ petitions in this Court in W.P. Nos. 1324 of 1966, 1433 of 1966, 739 of 1970, 740 of 1970 and 1377 of 1966. These writ petitions

were allowed in part and the order of assessment in respect of each one of the years in so far as it related to the imposition of penalty u/s 12(3) of

the Act was quashed by a Division Bench of this Court. The assessment in respect of the assessment year 1964-65 in so far as it related to penalty

u/s 16(2) of the Act was not quashed. In the appeals which were heard by the Appellate Assistant Commissioner, Salem, the Appellate Assistant

Commissioner confirmed the assessment by his order dated 14th June, 1971 but set aside the levy of penalty u/s 12(3). He, however, confirmed

the penalty u/s 16(2) of the Act in respect of 1964-65. In so doing, the appellate authority took into account the order of this Court in the writ

petitions. It should be mentioned here that the cancellation of levy of penalty by the Appellate Assistant Commissioner was on merits as seen from

the order though the High Court''s order also was noticed. The petitioner preferred an appeal before the Sales Tax Appellate Tribunal and the

appeal was dismissed on 11th May, 1972. In the meantime, on 14th April, 1969, the firm was dissolved and it appears that there was no further

transaction subsequent to the period 1964-65. The petitioner herein was one of the partners of the dissolved firm. On 22nd January, 1981, the

Deputy Commercial Tax Officer, Sankari, issued a notice to a firm by name O. V. K. Kathiresamurthy and Co., Petrol Bunk, Komarapalayam, in

which the petitioner was also a partner, demanding payment of a sum of Rs. 68,758.84 as due from Soundamman Textiles, the dissolved firm, in

which the petitioner was a partner and the tax and penalty claimed therein are detailed below :

M/s. Soundamman Textiles are in arrears of tax and penalty as detailed below :

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Tax Penalty

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1960-61 Rs. 13,176.78 -

1961-62 7,822.19 -

1962-63 22,224.28 -

1963-64 20,194.98 -

1964-65 97.61 5,343.00

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68,758.84 5,343.00

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The appellant paid this amount within the time allowed in two instalments on 3rd February, 1981 and 9th February, 1981. However, the Deputy

Commercial Tax Officer, again issued a notice in form No. 20 under Standing Order 29, demanding a huge amount of Rs. 1,52,301 as penalty

payable in respect of the said assessment years u/s 24(3) of the Act and that reads as follows :

To

Messrs. Soundamman Textiles,

Komarapalayam.

Please take notice that you are liable to pay a penalty of Rs. 1,52,301 (Rupees one lakh fifty two thousand three hundred and one only) under

sub-section (3) of section 24 of the Madras General Sales Tax Act, 1959 in respect of the arrears of tax detailed below. The penalty shall be paid

within 30 days from the date of receipt of this notice by money order to the undersigned or by remittance into the Government Treasury at Sankari

or by crossed demand draft or crossed postal order or to the Commercial Tax Officer/Joint Commercial Tax Officer/Deputy Commercial Tax

Officer/Assistant Commercial Tax Officer or to the Sale Tax Collection Inspector, failing which the amount will be recovered as if it were an arrear

of land revenue or fine imposed by a Magistrate.

Details of arrears

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Year or month Amount of tax Period for which Amount of

for which tax arrears payment was penalty

was due delayed

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Place : Sankari. Sd. Deputy Commercial Tax Officer,

Date : 5-3-1981. Sankari.

Note : Where payment is made by cheque, the cheque shall be crossed and shall be such as under the Madras Treasury Code and is receivable by

the Government Treasury concerned.

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Amount Period Total Per cent of Penalty

months penalty amount

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68,758.84 25-3-66 to 6 days 1/2 per cent 344.00

31-3-66

68,758.84 1-4-66 to 2 months 1/2 per cent 688.00

31-5-66

68,758.84 1-6-66 to 11 years 1 per cent 93,512.00

8-9-77 4 months

68,758.84 9-9-77 to 21 days 2 per cent 1,375.00

30-9-77

68,758.84 1-10-77 to 3 years 2 per cent 56,382.00

10-2-81

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Total Rs. 1,52,301.00

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Sd. Deputy Commercial Tax Officer,

5-3-1981.

It is to quash this demand of penalty from the petitioner, that writ petition in W.P. No. 1722 of 1981 was filed. That writ petition was dismissed by

a learned single Judge of this Court even at the admission stage. It is against that dismissal, the present writ appeal has been filed.

Since the writ petition was dismissed even at the admission stage, there was no occasion for the respondent to file a counter-affidavit. Therefore,

we permitted the learned Additional Government Pleader to produce all the records and rely on the facts found in the file in support of his

arguments and that is how we were able to gather all the facts which are set out above.

Section 24 of the Act, as it was originally enacted in 1959, read as follows :

(1) The tax assessed under this Act shall be paid in such manner and in such instalments, if any, and within such time, as may be specified in

the notice of assessment, not being less than twenty-one days from the date of service of the notice. If default is made in paying according to the

notice of assessment, the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the

properties of the person or persons liable to pay the tax under this Act.

(2) Any tax assessed on, or any other amount due under this Act from, a dealer or person and any fee due from him under this Act, may without

prejudice to any other mode of collection be recovered -

(a) as if it were an arrear of land revenue, or

(b) on application to any Magistrate, by such Magistrate as if it were a fine imposed by him :

Provided that no proceedings for such recovery shall be taken or continued as long as he has, in regard to the payment of such tax, other amount

or fee, as the case may be, complied with an order by any of the authorities to whom the dealer or person has appealed or applied for revision u/s

31, 33, 35, 36, 37 or 38.

(3) If the tax assessed under this Act or any instalment thereof is not paid by any dealer or person within the time specified therefore in the notice

of assessment or in the order permitting payment in instalments, the dealer or person shall pay by way of penalty, in addition to the amount due a

sum equal to -

(a) half a per cent of such amount, for each month or part thereof for the first three months after the date specified for its payment;

(b) one per cent of such amount, for each month or part thereof subsequent to the first three months aforesaid.

The assessment orders now in question being for 1964-65 and earlier years, section 24, extracted above, is the relevant provision. The notice of

assessment is to be in form B-3 and that reads as follows :

Form prescribed under the Madras General Sales Tax Rules, 1959. Issued under the Madras General Sales Tax Act, 1959 (Madras Act 1 of

1959).

FORM B-3

Notice of final annual assessment and demand.

(See Rules 16 and 18)

To

(Dealer) Assessment No.

Take notice that you have been finally assessed under the Madras General Sales Tax Act, 1959, to a tax of Rs. .......... (rupees .............) (in

words) only for the year ending ............ and that after deducting the total amount of the monthly payment(s) already made by you towards the tax

for that year, you have to pay a further sum of Rs. ....... (rupees .........) (in words) only. This balance of tax shall be paid within thirty days from the

date of service of this notice by inland money order (sales tax) in favour of the Sub-Treasury Officer or the Treasury Officer concerned or by

crossed cheque in favour of the undersigned or by remittance into the Government Treasury at .................... or by crossed demand draft or by

crossed postal order or to the Commercial Tax Officer/Joint Commercial Tax Officer/Deputy Commercial Tax Officer/Assistant Commercial Tax

Officer, or to the headman of ............... or to the Bill Collector, failing which the amount will be recovered as if it were an arrear of land revenue or

fine imposed by a Magistrate and you will also be liable to pay the penalty prescribed under sub-section (3) of section 24 of the Act. Turnover as

determined by the assessing authority in respect of -

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Name of goods Rate of tax Turnover

(1) (2) (3)

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Rs.

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Total

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Place :

Date :

Assessing authority.

The rules relating to notice of assessment and demand are those found in rules 16, 18, 32, 33 and 34. Rule 32 requires that every order of an

appellate or revising authority u/s 31 or 33 or 35, as the case may be, shall be communicated to the appellant or petitioner, to every other party

affected by the order, to the assessing authority against whose order the appeal was filed and also to any other authority concerned. The rule

further provides that the order passed on appeal or revision shall be given effect to by the assessing authority who shall refund within three months

from the date of the communication of the order any excess tax found to have been collected and shall collect any additional tax which is found to

be due, in the same manner as a tax assessed by himself. The rules were amended by G.O. 3523 dated 27th December, 1965 by providing that if

any amount is found to have been due from the dealer, the assessing authority shall serve upon the dealer a notice in form B-7 and the dealer shall

pay the sum demanded in the manner specified in the notice. Form B-7, as it was introduced at that time, read as follows :

FORM B-7

Notice of revision of assessment and demand.

(See Rules 32 to 34)

To

Sri

(Dealer).

Please take notice that consequent on the modification of the original assessment made on appeal by the Appellate Assistant Commissioner/Sales

Tax Appellate Tribunal/High Court or on revision by the Deputy Commissioner/Board of Revenue or any other authority, in his/its order No

................ dated the .................. the tax due from you is Rs. ............... (rupees ...........) (in words) only for the year ending ........... and that after

deducting the total amount of the payments already made by you towards the tax for that year, you have to pay a further sum of Rs. ................

(rupees .............) (in words) only. This balance of tax shall be paid within thirty days from the date of service of this notice by inland money order

(sales tax) in favour of the Sub-Treasury Officer or the Treasury Officer concerned or by crossed cheque in favour of the undersigned or by

remittance into the Government Treasury at ........... or by crossed demand draft or by crossed postal order or to the Commercial Tax Officer/Joint

Commercial Tax Officer/Deputy Commercial Tax Officer/Assistant Commercial Tax Officer, failing which the amount will be recovered as if it

were an arrear of land revenue or fine imposed by a Magistrate. You will also be liable to pay the penalty prescribed under sub-section (3) of

section 24 of the Act for the period from .......... viz., the date on which the amount became due as per the original assessment order to the date of

actual payment of the tax demanded in this notice.

Turnover as modified by the appellate or revisional authority in respect of :-

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Name of goods Rate of tax Turnover

(1) (2) (3)

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Amount of tax assessed.

Amount of tax already paid.

Amount of tax due.

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Total

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Place :

Date :

Assessing authority

The contention of the learned counsel for the appellant is that after the appeal and revision are disposed of in accordance with the decision of the

appellate or revisional authority, a fresh demand notice will have to be issued demanding payment of tax as per the revised order to be paid within

a time to be specified and if the assessee defaults in payment of the amount within the time specified in that notice, then only the penalty u/s 24(3) is

attracted. In this case, as already stated, a demand notice was issued after the appeal to the Tribunal was disposed of on 22nd January, 1981, and

as per the demand notice within the time specified therein the amount had been paid and, therefore, there was no further liability either on the firm

or on the individual partners of the firm thereof.

The learned Additional Government Pleader, on the other hand, contended that the penalty by way of interest is payable u/s 24(3) of the Act

from the date on which the amount became due as per the original assessment order and, therefore, the demand made in this case was legal and

valid. The argument of the learned Additional Government Pleader was mainly based on the provisions of section 24(3) as it was amended on 1st

December, 1972 by the Tamil Nadu Act 31 of 1972 and the language employed in form B-7 notice. For one thing, the provision to section 24(3),

which was the specific provision relied on by the learned Additional Government Pleader, was not there in the statute book during the assessment

years 1960-61 to 1964-65 which are in question and, therefore, the learned Additional Government Pleader could not rely on the language

employed in this provision in support of his argument. As per the provisions of section 24 which existed during the relevant assessment years which

we have extracted above, the dealer shall pay by way of penalty if he fails to pay the tax or any instalment thereof within the time specified

therefore in the notice of assessment or in the order permitting payment of instalment. In this case, the notice of assessment referred to in sub-

section (3), if it is taken as the one issued in form B-3 at the time when the original assessment was made, had included not only the tax but also the

penalties under sections 12(3) and 16(2) of the Act. As already stated, the appeal preferred against the assessment order was allowed in part and

the penalty was set aside and, therefore, a fresh demand notice should be issued in terms of the appellate order by the assessing officer in order to

call the assessee a defaulter in case the amount is not paid within the time. The penalty is payable, as seen from section 24(3) for not paying the

amount as per the notice of assessment. Therefore, unless there is a fresh demand, the assessee could not be held liable for any penalty as per the

provisions of section 24(3) then existing.

Learned Additional Government Pleader then pointed out that form B-3 notice of assessment and demand is only issued at the time when the

original assessment order is made and neither the Act nor the Rules provided in respect of the assessment years in question any separate notice to

be issued after the appellate or revisional authority had interfered with the order by modifying or otherwise interfering with that order and that,

therefore, there was no need for fresh issuance of notice and the department could claim the tax with reference to the original date of service of the

notice and calculate the interest on the amount of tax that was found due by the appellate or revisional authority. We are unable to agree with this

contention of the learned Additional Government Pleader. For one thing, nobody can be considered as a defaulter unless a demand notice is issued

and default has been committed in payment of the amount within the time specified therein. Secondly, the original notice of assessment included a

larger amount of tax and penalty which were not payable as per the order in appeal. Therefore, a fresh demand was called for after calculating the

amount that was found due as per the orders of the appellate or revisional authority and that a notice even if any form is not prescribed should have

been issued as a notice of demand. In fact, in this case, the assessing authority has not adopted form B-7 which was relied on by the learned

Additional Government Pleader. In fact, the demand issued was in form 29 of the Standing Orders issued to the assessing officers by the Board of

Revenue and not under B-7 of the statutory rules. That could only be on the basis that form B-7 was not applicable to the instant case. We are,

therefore, of the opinion that the original notice of assessment issued in this case could not be relied upon for the purpose of levying penalty u/s

24(3) of the Act. The other important thing in this particular case, on merits, is that for the assessment years 1960-61 to 1964-65, the penalty

could be worked out for the first three months at half per cent and for the remaining period at one per cent for each month of default. It is not open

to the department now to rely on the amendment made in 1977 increasing the interest from 1 per cent to 2 per cent. That will be applicable only

prospectively in respect of penalties levied subsequent to the amendment and not with reference to the earlier assessments.

Learned Additional Government Pleader, however, contended that so long as the amount is not paid, whatever be the interest payable will have

to be calculated at the rates provided with reference to the provision in force on that date. In fact, the learned Additional Government Pleader was

willing to accept that if the interest is reduced, then the defaulter may be entitled to a reduced penalty and not the original penalty. We are unable to

agree with this contention. The penalty or liability to pay interest is incurred with reference to the assessment year and the date of demand and the

default and not with reference to any subsequent period that may arise. If it was not a penalty as on date, nothing can make him liable on a future

date. But if on the other hand, he has incurred the liability, that liability will sustain till he discharges the same. Therefore, we are unable to agree

that the interest rate will vary with reference to the demand made earlier. Even otherwise, as earlier stated, since the demand is contemplated after

the appeal or revision is disposed of, at least in cases where assessment order is interfered with and the tax liability is reduced, unless a demand

notice is given in pursuance of the appellate authority''s order, no penalty could be levied on the assessee. Even as late as 1981, the assessing

authority demanded only Rs. 68,758.84 and that was paid. The demand made in form 29 later on was, therefore, not in accordance with law.

Learned counsel for the appellant relied on in support of his argument a decision of the Karnataka High Court reported in Suligavi v. Judicial

Magistrate [1980] 46 STC 335. That was a case relating to the assessment of a firm which was already dissolved and the question for

consideration was, whether the notice shall be issued on each of the ex-partners and whether the department could rely on the service of notice on

any one of the ex-partners of a dissolved firm. That is not clearly applicable to the present case where the firm was not dissolved during the

assessment years in question and the assessment orders were made on the firm itself. Therefore, merely on the ground that the notice of assessment

was not issued on the petitioner, it cannot be relied on as relieving the appellant from the liability to pay either the tax or the penalty. The other

decision of the Karnataka High Court in Lakshmi Ammal v. Commercial Tax Officer [1983] 54 STC 369 also does not deal with the question on

hand. It was with reference to recovery of money due from an assessee from out of the assets in the hands of the legal representatives. Different

considerations will arise in respect of the same and, therefore, that decision also has no relevance.

Learned Additional Government Pleader, on the other hand, brought to our notice a Division Bench decision of this Court in Sakthi Sugars

Ltd. v. Assistant Commissioner of Commercial Taxes [1985] 59 STC 52 wherein the validity of the provisions of section 24(3) of the Act was

questioned. This Court has upheld the validity of the same. That decision does not, however, decide the point at issue in this case. It is not the case

of the appellant that the provision of section 24(3) is not valid, and therefore the learned Additional Government Pleader also could not derive

much assistance from that decision. The other decision relied on by the learned Additional Government Pleader is reported in Govindji Punshi and

Another Vs. The Tahsildar, Savanur, Savanur District, Dharwar and Another, . On the facts we find that the assessment order was made on the

firm, but it was dissolved subsequently. It was held that the recovery proceedings can be initiated against each of the erstwhile partners or their

legal representatives. That is also a well-settled position with which there can be no quarrel. There is no direct decision dealing with the question

which we have now considered. We have already given our reasons for holding that the appellant could not be considered to be a defaulter for

making her liable for payment of the penalty u/s 24(3) of the Act.

For the foregoing reasons, we allow the writ appeal, set aside the demand and make the rule absolute. There will, however, be no order as to

costs.

Writ appeal allowed.