1 mgj IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION Sales Tax Reference No. 2 of 2005 M/s Zenith Computer Ltd. ..Applicant vs. State of Maharashtra ..Opponent/ Respondent Mr.P.C.Joshi for applicant Mr.V.A.Sonpal A Panel Counsel for respondent. Judgment Reserved on 28.1.2010 Judgment pronounced on:1.4.2010 CORAM: V.C.DAGA AND K.K.TATED JJ 1st April,2010 J U D G M E N T: (Per K.K.Tated J.) 1 Maharashtra Sales Tax Tribunal by its order dated 21st February, 2004 made this reference under sub-section (2) of section 61 of the Bombay Sales Tax Act, 1959 on the following questions of law. a) Whether on the facts and upon the circumstances and upon true interpretation of section 36(2) (c) of the Bombay Sales Tax 2 Act, 1959, the Tribunal was justified in holding that the Deputy Commissioner of Sales Tax (Appeals III) can initiate the action for imposition of penalty for the first time? b) Whether on the facts and under the circumstances of the case proper interpretation of Section 36(2)(c) Explanation II, the Tribunal was correct in holding that the Deputy Commissioner (Appeals) has jurisdiction for imposition of penalty under section 9(2)(c) of the Central Sales Tax Act read with Section 36(2)(c) of the Bombay Sales Tax Act, 1959? c) Whether on the facts and under the circumstances of the case the Tribunal was justified in holding that the penalty under section 9(2A) of the Central Act read with Section 36(2)(c) read with Explanation II can be levied, for the months for which returns were in fact filed in time? d) Whether on the facts and under the circumstances of the case the Tribunal was justified in holding that the penalty under section 9(2A) of the Central Act read with Section 36(2)(c) can be imposed for the first time in appeal proceedings even when no tax was found due in appeal by the appellate authority? 3 e) Whether on the facts and under the circumstances of the case, the Tribunal was justified in holding that the appellate authority had the original jurisdiction of imposing the penalty for the first time even though there was no concealment nor any tax determined to be payable in an order under section 55? THE FACTS: The applicant herein is a manufacturer of computers and in the context of his business activities. The applicant is a registered under the provisions of the Bombay Sales Tax Act, 1959, (hereinafter referred to as the Bombay Act ) as also the Central Sales Tax Act, 1956, {hereinafter referred to as the Central Act } 2 The applicant was assessed for a period from 1st May 1986 to 30th April, 1987 under the Central Act vide assessment order dated 20th March, 1990 passed by the Assistant Commissioner of Sales Tax (Assessment) whereunder the tax liability was 4 determined in the sum of Rs.5,03,095/-. It was subsequently enhanced to Rs.5,38,304/- under the rectification order dated 1st September, 1990 passed by the Assessing Authority under section 9(2) of the Central Act read with section 63 of the Bombay Act. 3 The extra demand as per rectification order in the sum of Rs.2,95,904/- was towards tax; Rs.17,063/- towards penalty under section 36(3) and Rs. 2,25,377/- was by way of interest under section 36(3)(b) for delayed payment of tax. The total extra demand worked out in the sum of Rs.5,38,304/-. 4 Being aggrieved by the said order passed by the Assessing Authority, the applicant filed an appeal before the Deputy Commissioner of Sales Tax (Appeals). The said appeal was admitted on part payment of Rs.4,83,943/-. The said appeal was decided by the Appellate Deputy Commissioner vide its 5 order dated 24th June, 1991. The applicant during the course of appellate hearing produced some C forms on the basis of which the Deputy Commissioner granted some relief in the tax as also reduced penalty levied under section 36(3), however, concessional tax rate of 8% under section 8(5) of the Central Act in respect of the inter state sales of Computers made to educational institutions was denied holding that the computer could not be held to be a scientific equipment/instrument within the meaning of notification dated 21st February 1972 issued under section 8(5) of the Central Act. The applicant s contention with regard to levy of interest under section 36(3)(b) was upheld holding that differential tax duty as per the assessment/rectification order did not pertain to the period after 21st April, 1987 as the provision relating to levy of interest did not have retrospective effect. 6 The Deputy Commissioner thus fully deleted the levied amount under section 36(3)(b) vide its order dated 24th June, 1991 and partly allowed appeal awarding refund in the sum of Rs.1,93,273/- 5 The Deputy Commissioner while disposing of the appeal had a view that the appellant/assessor was liable to pay penalty under section 9(2A) of the Central Act read with section 36(2)(c) Explanation II of the Bombay Act subject to affording an opportunity to show cause as to why penalty under section 36(2)(c) Explanation II should not be levied for failure to submit the returns within the prescribed time for the months of May, June, July, August and October of 1986 and January, February and March of 1987. 6 The Deputy Commissioner, after hearing the appellant/assessee on penalty, passed a separate order dated 24th June, 1991 7 directing payment of penalty in the sum of Rs.82,000/- under section 9(2A) of the Central Act read with section 36(3)(c) Explanation II of the Bombay Act. 7 Being aggrieved by the aforesaid order the applicant filed second appeal being No.1169 of 1991 before the Tribunal. 8 In the aforesaid second appeal the applicant raised an objection about denial of benefit of concessional tax @ 8% under section 8(5) of the Central Act in respect of the inter State sales of computers to the educational institutions. Similarly levy of penalty under section 36(3) was also challenged. 9 The aforesaid second appeal was decided by the Tribunal by its judgment dated 26th February, 1993 granting remission of penalty but denying benefit under section 8(5) was affirmed. 10 Aggrieved by the above judgment, the 8 applicant filed a Reference Application no. 26 of 1993, since the benefits under section 8(5) ibid were denied. The said reference application was allowed by the Tribunal. The questions arising from the judgment of the Tribunal were referred to this Court for decision under section 61 of the Bombay Act. 11 This Court by its judgment dated 24th February, 1995 decided the questions in favour of the applicant/assessee holding that the computers were scientific equipments as contemplated by the relevant notification as such the benefit of the concessional tax rate at 8% of the Central Act was held legally admissible to the applicants in respect of the inter State sales of computers effected in favour of the educational institutions. 12 The Tribunal while implementing the judgment of this Court given in reference, passed an order dated 4th April, 1998 in 9 Second Appeal No.1169 of 1991 allowed the concessional rate of 8% under section 8(5) of the Central Act. 13 The applicant was required to carry another appeal before the Tribunal bearing Appeal No.102 of 1992 against the separate order dated 24th June, 1991 passed by the Appellate Deputy Commissioner under section 36(2)(c) Explanation II wherein penalty was imposed. The said appeal was heard and dismissed by the Tribunal vide its judgment dated 23rd December, 1994 and order of penalty was affirmed. 14 The applicant challenged the aforesaid penalty order on various grounds contending that the Deputy Commissioner had no power and/or jurisdiction to levy penalty for the first time in exercise of appellate powers. It was also contended that the relevant assessment period ended on 30th April, 1987 and that the assessee had not 10 effected any transactions after 21st April, 1987. It was also challenged on the ground that no extra tax was found payable while deciding the appeal against the order of assessment. Alternatively, it was urged that non filing of returns for the months of October 1986, January and February 1987 was erroneously shown as cause for levying penalty in the sum of Rs.60,770/- especially, when returns were in fact filed within the statutory prescribed time frame as such the amount of penalty to the extent of Rs. 60,770/- was unwarranted and liable to be set aside. However, the Tribunal rejected all these contentions and dismissed the appeal filed by the applicant against the order of penalty. 15 Not satisfied with the above order passed by the Tribunal, the applicant filed Reference Application (Reference Application No.8 of 1995) raising substantial questions 11 of law arising from the said judgment and prayed for reference to this Court under section 61 of the Bombay Act. The said Reference Application was dismissed by the Tribunal by its judgment dated 31st July, 1999. 16 The applicant not satisfied with the above order moved this Court by filing an application under the first proviso to sub- section (1) of section 61 of the Bombay Act. The said application was allowed by this Court by its order dated 25th July 2003 directing the Tribunal to draw a statement of case and refer the questions of law as prayed by the applicant to this Court. Pursuant to the said order, the Tribunal referred the questions of law extracted in the opening part of this order for consideration of this Court. SUBMISSIONS: 17 Learned Counsel Mr. Joshi for the 12 applicant submitted that relevant period involved in the present reference is 1st May 1986 to 30th April, 1987. The assessment under dispute relates only to the proceedings under the Central Sales Tax Act, 1956. He submitted that the assessed dues being less than 20% of the taxes paid along with the return as well as set off available to it, the applicant/assessee was not within the net of Explanation 1 to section 36(2)(c) of the Bombay Act. Despite this clear legal position and fact that the interest provisions were introduced for the first time in the statute book with effect from 21st April, 1987 as such, the Assistant Commissioner could not have levied interest under section 36(3)(b) in addition to the imposition of penalty under section 36(3) on the delayed payment of tax. He further submits that levy of interest under section 36(3)(b) was inserted for the first time on 21st April, 13 1987 and, therefore, the Deputy Commissioner of Sales Tax (Appeals) had rightly deleted the entire amount of interest. Consequently the first appellate order resulted in refund of Rs.1,93,279/- However, the Appellate Deputy Commissioner while disposing of appeal could not have taken steps to substitute deletion of interest with that of levy of penalty under section 9(2A) of the Central Act read with section 36(2)(c) Explanation II of the State Act under separate order. The said appellate authority, thus could not have issued a show cause notice dated 5th June, 1991 to the applicant calling upon its explanation by 3rd July 1991. The applicant had no option but to submit its written objections which was submitted on 19th June, 1991. In the alternative it was pointed out that some of the returns referred by him in the show cause notice were admittedly filed well within 14 prescribed time as such no penalty was called for for those months. 18 Mr.Joshi, learned Counsel for the applicant submitted that the penal provisions contained in section 36(2)(c) needs to be strictly construed. He further submitted that the appellate authority i.e. Appellate Deputy Commissioner did not have any power to impose penalty for the first time in exercise of appellate powers. He submits that plain reading of section 36(2)(c) of the Bombay Act shows that the power of imposing penalty during the material time, namely, the period up to 21st April, 1987 was conferred only upon the Commissioner and not on any other authority much less the Appellate Authority under section 55. In his submission, the expression while passing any order in any appeal or revision proceedings, it appears to the Commissioner makes it amply clear that 15 the satisfaction has to be arrived at in any appeal by the Commissioner and not by the Appellate Deputy Commissioner that too for the first time. 19 Mr.Joshi, learned Counsel for the applicant further submitted that the section 55 of the Bombay Act as it was holding the field during the material time provided for an appeal under sub-section(1)(b) to the Deputy Commissioner against the order passed by the Assistant Commissioner. The applicant accordingly approached concerned Appellate Deputy Commissioner against the order levying interest under section 36(3)(b) which, according to the appellant, was not leviable during the period prior to 21st April, 1987 since this provision came on the statute book only with effect from 21st April, 1987. It had no retrospective effect. 20 Mr.Joshi submits that sub section(2) had provided an option to the applicant to 16 approach the Tribunal or the Commissioner in second appeal against the order passed in the first appeal by the Assistant Commissioner or the Deputy Commissioner. As such the applicant was rightly in first appeal before the Deputy Commissioner. It was not a second appeal. Therefore, the provisions of sub-section (2) were not applicable in the facts of the case. 21 Mr.Joshi further submitted that sub-section (6) of section 55 was the only provision providing for the powers of the Appellate Authority. According to him, plain reading of sub-clauses (a) and (b) also supports the contention that the concerned Appellate Authority did not have any power to impose penalty for the first time under the expression confirm or cancel such order or vary it so as to either to enhance or to reduce the penalty employed in section 55(6) (b). It did not confer power to impose a 17 fresh penalty for the first time nor did it confer any power on the Appellate Deputy Commissioner to pass any penalty order while deciding the appeal. In support of this submission, Mr.Joshi, relied on the decision of this Court in the case of Indoswe Engineers(P) Ltd. Vs. State of Maharashtra reported in (101) STC 177. 22 According to Mr.Joshi as per the aforesaid decision the first Appellate Authority, namel; the Appellate Deputy Commissioner did not have any power to impose penalty for the first time nor was he justified in resorting to explanation II to section 36(2)(c) for some alleged delay in submission of the return, especially when the Assessing Authority had passed the order under section 33(3) on the basis of the returns for all months submitted by the applicant in time or may be after some delay. He mainly relied on paragraphs 12 and 13 of 18 the said judgment which read as under: 12.We now turn to the questions referred to us by the Tribunal. However, before we proceed to consider the same, it may be expedient to set out section 36(2)(c) of the Act which provides for imposition of penalty in certain cases. This sub-section, so far as relevant, at the material time, read as follows: 36 Imposition of penalty in certain cases and bar to prosecution:- ...... (2),If, while passing or reassessing the amount of tax due from a dealer under any provisions of this Act or while passing any order in any appeal or revision proceedings, it appears to the Commissioner that such dealer:..... (c) has concealed the particulars of any transaction or knowingly furnished inaccurate particulars of any transaction liable to tax, the Commissioner, may after giving the dealer an opportunity of being heard, by order in writing, impose upon the dealer by way of penalty, in addition to any tax assessed or reassessed or found due in the appeal or revision proceedings, 19 as the case may be, a sum not exceeding one and one half times the amount of the tax. Explanation: (1) Where a dealer furnishing returns has been assessed by the Commissioner under sub-section (3) or (4) of section 33, or assessed under sub-section (3) of section 41, or reassessed under clause (b) of sub section (1) of section 35, or in whose case an order has been passed under section 55 or clause (a) of sub-section (1) of section 57 and the total amount of tax paid by the dealer for any year is found to be less than eight per cent of the amount of tax as so assessed or reassessed or found due in appeal or revision, then, for the purpose of clause (c), he shall be deemed to have concealed the turn over, or knowingly furnished inaccurate turnover liable to tax, unless he proves to the satisfaction of the Commissioner, that the payment of a lesser amount of tax was not due to gross or wilful neglect on his part. Explanation (2): Where a dealer fails without sufficient cause to furnish returns in respect of any period by the prescribed date, then for the purpose of clause (c) he shall be deemed (until the contrary is proved) to have concealed the whole turnover liable to tax as 20 assessed or reassessed or determined in an order passed under section 55 or clause (a) of sub-section (1) of section 57 13 It is clear from a plain reading of the above provision that the gist of offence is that (i) the assessee has concealed the particulars of any transaction or (ii) knowingly furnished inaccurate particulars of any transaction liable to tax. On commission of such an offence being established, the assessee would be liable to a penalty to the extent of one and one half times the amount of the tax. 23 Mr. Joshi also has relied upon the judgment of this Court in the case of Commissioner of Sales Tax, Bombay and another Vs. The Oriental Rubber Industries Pvt.Ltd. reported in 34 STC 113 to contend that the Deputy Commissioner of Sales Tax was not delegate of the Commissioner. He relied on the judgment in the case of Commissioner of Sales Tax, Maharashtra State, Bombay Vs. Malabar Products reported in 99 STC 546 in support of his submission. In this case this 21 Court had an occasion to consider the expression prescribed date employed in sub- section (5) of section 33 to mean in the context of the scheme of the assessment under section 33 and the various sub-sections thereof when read harmoniously to mean that the power under that sub-section can be exercised even on the basis of the late return as well. On the basis of this Mr.Joshi urged that the question of law referred to this Court for its opinion under section 61(2) needs to be answered in favour of the applicant and against the Revenue. PER CONTRA: 24 Mr.V.A.Sonpal, A Panel Counsel submitted that the main question raised by the applicant in the present reference is whether the Deputy Commissioner hearing the appeal could issue show cause notice and levy penalty for the first time in exercise of appellate powers. He submitted that the 22 Deputy Commissioner had all powers as provided in section 20(5) of the Bombay Act which were of the Commissioner. In other words his contention is that he is the Commissioner though the area of his operation was limited to the area for which he was appointed. As such, there was no need to delegate powers of the Commissioner to the Deputy Commissioner since those powers were bestowed on him by the statute itself. According to him, for the purpose of clear understanding of the reference, the Deputy Commissioner needs to be construed as a the Commissioner. In support of this submission he relied on the judgment in H.B.Munshi, Commissioner of Sales Tax Bombay and another Vs. The Oriental Rubber Industries Pvt.Ltd. reported in 34 STC 113. 25 Mr.Sonpal further submitted that it is well settled that the proceedings in appeal are extension of the original 23 assessment proceedings and that the Appellate Authority had all the powers which were available to the Assessing Authority. According to him, while challenging the order of Assistant Commissioner the Deputy Commissioner who passed the assessment order, had all the powers of assessment as if it was the revisional proceeding. He submitted that the powers of the Appellate Authority were co-terminus with the assessing authority. In support of this proposition, he relied on the judgment in the matter of M/s Indoswe Engineers (P) Ltd. Vs. State of Maharashtra (supra). According to him, the powers of the Appellate Authority are co terminus with the assessing authority and as such the power of assessment also vests in the appellate authority and, therefore, the power of the Commissioner at the time of assessment as provided under section 36(2)(c) are also available to the Deputy Commissioner while 24 hearing the appeal. STATUTORY PROVISIONS: 26 The main question which needs to be considered in this reference is whether the Deputy Commissioner of Sales Tax (Appeals) is justified in imposing the penalty of Rs. 82,000/- on the applicant for filing some of the tax returns late under sec. 9(2A) of the Central Sales Tax Act 1956 read with section 36(2)(c) Explanation II of the Bombay Sales Tax Act relevant for the period 1st July 1981 to 30th April, 1987. 27 Charging section 36(2)(c) of the Bombay Sales Tax Act which was on the statute book during the period from 1st July,1981, to 20th April, 1987 reads thus: 36(2) If while assessing or reassessing the amount of tax due from a dealer under any provisions of this Act or while passing any order in any appeal or revision proceedings, it appears to the Commissioner that such dealer- (a).......... (b).......... (c) has concealed the particulars of 25 any transaction or knowingly furnished inaccurate particulars of any transaction liable to tax; the Commissioner may, after giving the dealer an opportunity of being heard, by order in writing, impose upon the dealer by way of penalty, in addition to any tax assessed or reassessed or found due in the appeal or revision proceedings, as the case may be, a sum not exceeding one and one half times the amount of the tax. Explanation .- (1)...... Explanation  (2) Where a dealer fails without sufficient cause to furnish returns in respect of any period by the prescribed date, then, for the purpose of clause (c), he shall be deemed (until the contrary is proved) to have concealed the whole turnover liable to tax as assessed or reassessed or determined in an order passed under section 55 or clause (a) a sub-section (1) of section 57. As against the above section, let us see now the said section as amended with effect from 21st April, 1987. In order to appreciate this, it is also necessary to extract the said section after its amendment with effect from 21st April, 1987 which is as below. 36(2): If while assessing or 26 reassessing the amount of tax due from a dealer under any provisions of this Act or while passing any order in any appeal, revision or rectification proceedings, it appears to the Commissioner or the Tribunal that such dealer has : (a)..... (b)...... (c) failed to disclose any transaction of sale or purchase or has failed to show in the return the appropriate liability to pay tax or has claimed inaccurate deduction or drawback, set off, refund, remission or reimbursement or has failed to disclose fully and truly all material facts necessary for the proper and correct quantification of the tax liability. (c).... then the Commissioner or, as the case may be, the Tribunal, may, after giving the dealer an opportunity of being heard, by order in writing, impose upon the dealer by way of penalty, in addition to any tax assessed or reassessed or found due in the appeal or revision or rectification proceedings, as the case may be:- (i)...... (ii)...... (iii).... Explanation I:..... Explanation II: Where the dealer fails to furnish returns in respect of any period by the prescribed 27 date,then for the purpose of clause (c),he shall be presumed (until the contrary is proved) to