Veekesy Rubber Industries vs Sales Tax Officer and Others

S. Sankarasubban, J.—Petitioner--Veekesy Rubber Industries--is an assessee under the Kerala General Sales Tax Act, 1963 (hereinafter referred to as "the KGST Act"). The original petition has been filed to quash exhibit P4 notice issued by the second respondent. The assessment year in question is 1988-89. Exhibit P1 is the order of assessment passed by the first respondent. The main contention of the petitioner against the assessment proceedings is that the petitioner was entitled to the benefit of the Government orders S.R.O. Nos. 968 of 1980, 654 of 1989 and 544 of 1990 and that the rubber products were liable to be taxed at 3 per cent. But, by exhibit P1, this was rejected and the products were taxed at 8 per cent. Against exhibit P1, the petitioner filed an appeal before the Appellate Assistant Commissioner, the third respondent. In exhibit P2 it was stated thus :

"1. The assessment order in question was passed on November 30, 1990. Subsequent to this date, the Government of Kerala has issued G.O. (P) No. 6/91/TD dated January 15, 1991 (corresponding to S.R.O. No. 80 of 1991). As per the said G.O. the rate of tax on the sale of rubber products is reduced to 3 per cent with effect from September 1, 1988 to March 26, 1990. It is therefore submitted that the appellant-firm is liable to pay tax only at the rate of 3 per cent on the sale of hawai chappals and straps for the period from September 1, 1988 to March 31, 1989 against 8 per cent adopted by the officer.

The turnover relating to the hawai sheets for the above period is taxed at 12 per cent. This is also illegal and incorrect. As per the above G.O. the correct rate applicable is 3 per cent only."

The Appellate Assistant Commissioner then held as follows :

"Since the G.O. referred to above is effective from September 1, 1988, I set aside the assessment for the assessment year 1988-89 and remand back to the assessment authority for fresh disposal according to law".

After remand, exhibit P3 is the assessment order passed by the first respondent. From September 1, 1988 to March 31, 1989 the hawai straps and chappals were to be taxed at 3 per cent. Exhibit P3 is dated March 25, 1992. Thereafter the second respondent, Assistant Commissioner (Assessment) of Sales Tax issued a notice u/s 19 of the KGST Act. This notice is dated February 5, 1993. In the notice it is stated that the reduced rate of tax at 3 per cent is not applicable to the dealer for the reasons stated in the notice. It is stated that as per S.R.O. No. 1516 of 1990 it was clarified that finished rubber products, for the purpose of Notification S.R.O. No. 641 of 1981, shall mean any goods manufactured, utilising rubber in any form coming under entry 161 of the First Schedule to the Act. Therefore the reduction in the rate of tax on the purchase turnover is not correct. It is against exhibit P4 notice that the original petition is filed.

The learned counsel for the petitioner Sri. T. Karunakaran Nambiar submitted that the concessional rate under S.R.O. No. 80 of 1991 was not granted under the original assessment ; but on appeal the assessment was set aside and it was held that the petitioner was entitled to the concessional rate. Accordingly exhibit P3 was issued as per the directions in exhibit P2. The power u/s 19 of the Act cannot be exercised with regard to the matter which has been decided by the appellate authority. He further contended that in any event S.R.O. No. 1516 of 1990 cannot be made applicable because it is only prospective in nature.

Special Government Pleader for Taxes Mr. V.V. Ashokan contended that exhibit P4 is only a notice and that the petitioner can very well file objection to exhibit P4 and hence the original petition should not be entertained. He further contended that u/s 19(3) the power u/s 19(1) can be exercised by the assessing authority even though the original order of assessment, if any, passed in the matter has been the subject-matter of an appeal or revision.

It is true that the petitioner can file objections to exhibit P4. But, this original petition was filed in 1993 and it has been pending here for the last six years. In the above circumstances, I do not think it proper to drive the petitioner to resort to the alternate remedy. Exhibit P4 is issued on the ground that S.R.O. No. 1516 of 1990 is applicable. S.R.O. No. 1516 of 1990 is dated January 2, 1990. If it is applicable, then it cannot be said that exhibit P4 notice is without jurisdiction. The nature of S.R.O. No. 1516 of 1990 was considered by a Division Bench of this Court in Deputy Commissioner (Law), Board of Revenue (Taxes), Ernakulam v. M.R.F. Ltd. [1998] 109 STC 306. Speaking on behalf of the Bench, K.K. Usha, J., in paragraph 41 of the judgment observed thus :

"As correctly contended by learned counsel for the assessee, the language used in the Notification S.R.O. No. 1516 of 1990 itself is the best aid to find out whether the notification is clarificatory in nature or whether it will amount to an amendment to the provisions contained under S.R.O. No. 641 of 1981. The notification states that which will come into effect only from April 1, 1989. The above provision itself is an answer to the contention of the Revenue that it is clarificatory in nature..................................If that be so, the next question to be considered is whether retrospective effect can be given to the amendment in S.R.O. No. 1516 of 1990 even with effect from April 1, 1989 as provided under the notification. Since we have already taken the view that the. effect of the explanation in S.R.O. No. 1516 of 1990 is taking away the benefit of concessional rate of tax in respect of rubber purchased for manufacturing compounded rubber, the notification has to be taken as one issued in exercise of the powers conferred under Sub-section (3) of Section 10 of the Kerala General Sales Tax Act, 1963. We are in full agreement with the view taken by the learned single Judge in M.M. Nagalingam Nadar Sons v. State of Kerala [1993] 91 STC 61 (Ker) that Government has no power u/s 10(3) of the Act to issue a notification with retrospective effect."

Thus, the notification has no retrospective effect. If that be so, the basis of exhibit P4 goes.

Even otherwise the question whether the petitioner is entitled to concessional rate was contested before the assessing authority. The assessing authority held against the petitioner. In the appeal it was held that the petitioner was entitled to the concessional rate. In such circumstances, it will not be proper for the assessing authority to re-open the assessment u/s 19. True Section 19(3) gives power to the assessing authority to reopen the assessment even if such assessment order was subject-matter of an appeal or revision. If an appeal was filed and the appellate authority directs the assessing authority to act in a particular way, that cannot be set at naught by the assessing authority by invoking the power u/s 19. So far as the dispute in question is concerned, according to me, it has merged with the appellate authority''s order. A similar question arose before the Orissa High Court in State of Orissa v. Ugratara Bhojanalaya [1993] 91 STC 76. There the question arose was whether the power u/s 12(8) of the Orissa Sales Tax Act, 1947 for re-opening the assessment could be resorted to in a case where there is an appeal against the assessment. In that case, assessments were made for the years 1976-77 and 1977-78. In appeal the Assistant Commissioner nullified the assessments on the ground that condition precedent for initiation of proceeding u/s 12(8) of the Act do not exist. In that case, A. Pasayat, J. (as he then was) speaking for the Bench observed thus :

"An assessment order merges with the appellate order by operation of the doctrine of merger. The appellate order would thereafter be the operative decision in law. The assessing officer has no jurisdiction, where an assessment has been taken on appeal, and annulled, to initiate proceedings u/s 12(8) of the Act in respect of the assessment, as it has merged with the appellate order".

Here the question whether the petitioner was entitled to concessional rate is concluded by the order of the appellate authority and the Government order now relied on in exhibit P4 has no retrospective effect. In the above view of the matter, I hold that exhibit P4 is without jurisdiction. Hence I quash exhibit P4.

Original petition is allowed.

Order on C.M.P. No. 6625 of 1993 in O.P. No. 3518 of 1993 dismissed.